Everything You Wanted to Know About CECL Disclosures
The FASB’s intent was to introduce new disclosures only for the part of the credit loss guidance that relates to reasonable and supportable forecasting and retain the existing disclosures.
According to Rahul Gupta of Grant Thornton, who served with FASB as CECL project manager, “the Board wasn’t focused on changing disclosures, but with a new standard there had to be tweaks.” As the overall purpose of CECL is to help institutions better understand the risk in their portfolios, he added, “the disclosures follow suit in supporting the new standard in that initiative.”
To provide direction, Gupta joined forces with Dorsey Baskin, MST Advisory Services and recent retiree of Grant Thornton, to present “The Expanding Role of Disclosures” session at the MST 2017 National ALLL Conference. The two authored an extensive whitepaper, “CECL Modifications of Typical ALLL Disclosures”, which was released at the National ALLL Conference. The paper presents a complete sample disclosure document, including charts. Each section is accompanied by notes explaining the related CECL guidance and defining disclosure nuances. A companion report, “Loan, Debt Security, and ACL Disclosures Required by CECL,” contains the disclosure language from the FASB guidance, highlighting areas that are new or modified from the disclosures as required by the incurred loss standard.
Much of the difference in the disclosures relates to changing terminology. For example, the disclosures will no longer speak of “impaired loans” but of “expected credit losses for all loans and held-to-maturity debt securities.” As well, the “provision for loan and lease losses” is now called “expense for credit loss.”
In their MST 2017 National ALLL Conference presentation, Baskin and Gupta offered a summary of the changes:
- Vintages required by public business entities on amortized cost basis (everything in CECL works off amortized costs basis)
- Disclosure of how the institution developed its reasonable and supportable forecast
- Discussion of reversion methods
- The roll forward for purchased credit loans
- Allowance has to be shown on balance sheet
- Disclosure of amortized costs for non accrual loans
- For off-balance credit sheet where there is a liability estimate: allowance shown separately as a liability
Read more on CECL Disclosures in the whitepaper and companion report in the MST Academy.