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A Q & A with CECL Project Manager Rahul Gupta

Brandy Aycock
June 3, 2016
Read Time: 0 min

**Please check our most recent blog post regarding the latest changes to the FASB deadlines.**


If you want to know why or how FASB developed CECL, go to the source. Rahul Gupta returned to his post at Grant Thornton as partner, National Professional Standards Group, in February 2016 after serving as CECL project manager since 2011 when he joined the FASB, where he worked on developing the forthcoming CECL guidance.

Last week in San Diego at the 2016 National ALLL Conference, Mr. Gupta answered attendees’ questions about CECL. A few of the questions and Mr. Gupta’s answers follow.

Q. What is the release date?

Gupta. Likely the week of June 13. Most likely it will be issued on June 15, 2016.

Q. Will financial institutions have options when choosing a CECL compliant methodology? Was that a conscious decision?

Gupta. Yes. In the earlier proposal the Board had proposed that a method based on discounting the future expected cash flows would be used to calculate allowance, but then the Board decided not to prescribe any specific method. The guidance will allow any method as long as it is reasonable; they went to great lengths to say we’re not prescribing a method. You can tweak your current model to reflect future losses, if that works to come up with a reasonable credit loss estimate.

Q. Why adopt early and what kind of impact if there’s a wave of early adoptions?

Gupta. The Board generally does not support allowing early adoption because it not only results in non-comparability between various institutions’ financial statements for some period of time, it also confuses the users of the financial statements. The only reason it’s in there is because many institutions with international operations requested that early adoption be allowed so that they can use the processes they have developed for adopting IFRS 9 to adopting the FASB’s credit losses standard.

Q. What data are most important to gather for CECL?

Gupta. Two important things:

  1. Historical loss information
  2. Data that would help in appropriate pooling of financial assets.


Q. What is the appropriate history for a starting point of data?

Gupta. It is difficult to provide guidance on the appropriate history and what you should look at, but it should be comprised of an economic cycle. Though it is hard to know what “economic cycle” means. What the Board intends is that the quality of the loans in your current portfolio on which you are estimating your credit allowance should be similar to the loans that are in your historical period.

Q. Did the Board consider forcing banks to use a discounted cash flow (DCF) model?

Gupta. Early guidance recommended a DCF model but feedback made the Board realize it wasn’t feasible to force you into that. Even in DCF, the way you apply it can be different.

Q. What if a bank doesn’t apply CECL?

Gupta. The Board never sets standards thinking people won’t be able to apply them. Its standards are written with the intent that companies will apply them in good faith and therefore the Board does not intentionally put in anti-abuse provisions in GAAP.

Q. What is a practical way to look at economic factors?

Gupta. The guidance is lacking in terms of what kind of adjustments to make. It just tells you to think about those things. You need to document your story, get your process straight.

Q. What are acceptable forecasts?

Gupta. If management believes internal forecasts are more relevant and reliable, then fine. Auditors have to validate how reasonable the forecast is, and if the company uses that forecast to run its business, how can an auditor object? Just document that you are using it.

Q. What is your recommendation for all who have to adopt CECL within the next few years?

Gupta. The first step is to start thinking about creating a process of change. Make a list of what you do currently and what in those steps you are changing. Then show how you will make that change. Planning is important, then execute.

View the video of the Q & A with Rahul Gupta, FASB CECL Project Manager. 

Short on time and wish to watch a teaser of the video? Click here.


For the most up-to-date information regarding CECL and the impending deadlines check out our most recent blog posts.

About the Author

Brandy Aycock

Brandy Aycock is Director of Event Marketing at Abrigo.

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Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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