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Expected Credit Loss Disclosures: Help Investors Understand the Transition

Mary Ellen Biery
September 28, 2018
Read Time: 0 min

As Securities and Exchange Commission (SEC) filers prepare to meet the deadline to implement the FASB’s current expected credit loss model, or CECL, for fiscal years beginning after Dec. 1, 2019, SEC registrants are weighing what expected credit loss disclosures to provide and how to disclose the new standard’s expected impact. Some investors are already beginning to see early disclosures about the new standard.

During the AICPA’s National Conference on Banks & Savings Institutions, SEC Chief Accountant Wesley Bricker provided a high-level description of some of the components that will be important for SEC filers to consider communicating as they implement the accounting change. He also highlighted the importance of companies communicating externally about some of the anticipated impacts of the accounting standard.

“Nobody likes surprises,” Bricker said, according to a copy of his prepared remarks. “Transition disclosures enable investors to understand the anticipated effects of the new standard.”

CECL transition disclosure suggestions

Bricker said that drawing from experience with transition reports related to CECL’s international counterpart, International Financial Reporting Standard 9, or IFRS 9, four components will be important for SEC registrants to provide to help investors understand the anticipated effects of CECL. Financial institutions should keep these in mind as they develop expected credit loss disclosures. The components are:

1. An easy-to-understand explanation of new terms and key concepts
2. Specific descriptions of the methodology and the significant judgments made by management
3. A tabular presentation of the economic assumptions utilized and
4. A breakdown by lending portfolio of the quantified effects of moving from incurred to expected credit losses.

Bricker said the SEC is actively involved in monitoring the implementation of CECL. It has been helping companies and their auditors interpret the standard through the SEC’s voluntary consultation process and has been participating in educational forums. Companies have also been active in implementation, Bricker noted, and he encouraged them to continue to do so.

Learn more about navigating the CECL transition.

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“Companies need a process and controls in places to assess and implement accounting changes,” he told the AICPA audience. “They also need to understand the potential impacts. Change in accounting standards is easier said than done—but as we saw with the revenue recognition standard, it can be accomplished with sufficient planning and consistent communication among management, the audit committee, and the external auditor.”

He said companies and their financial statement preparers should be keeping good records of transactions and disposition of assets, should maintain internal accounting controls and should document a systematic methodology that will be used each period to determine the amount of loan losses that will be reported, as well as the rationale supporting that determination.

Bricker also had words of advice for audit committees. He encouraged them to understand management’s plans for implementing CECL and to be informed of the status of implementation progress, including any required updates to internal control over financial reporting. “The audit committee plays a vital role in overseeing a company’s financial reporting, including the implementation of new accounting standards,” he said.

Additional Resources

Webinar: Navigating Loan Segmentation Under CECL
Whitepaper: CECL Prep Kit

About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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