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FASB issues FAQs on CECL model

Mary Ellen Biery
March 28, 2013
Read Time: 0 min

**The FASB issued the final CECL standard on June 16, 2016. For up-to-date information and resources, access the updated CECL Prep Kit.

Responding to uncertainty about the proposed new model (commonly known as the CECL model) for accounting for credit losses, the Financial Accounting Standards Board (FASB) this week issued answers to some frequently asked questions about the proposed changes.

In the 16-page FAQs document, FASB outlined its objectives, provided detail on its proposal for measuring expected credit losses and discussed why it didn’t select other alternatives considered.

FASB said there are a number of conceptual and practical reasons for recognizing all expected credit losses at the first reporting date following loan origination. The organization said it sees no conceptual reason why an entity should wait to recognize an expected loss if a lender does not expect to collect contractual cash flows. Many institutions have expressed concern that the overall Allowance for Loan and Lease Losses (ALLL) would rise as a result of the changes, so FASB is accepting comment letters on its plans until April 30. 

“An accounting standard that delays recognition of expected losses fundamentally must determine which losses not to recognize, why those losses should not be recognized, and the period of time for which the unrecognized losses should be delayed,” FASB said. “The Board believes that it is extremely difficult to answer those conceptual questions in anything other than an arbitrary manner.”

Practically speaking, FASB said it believes investors want transparency with regard to full estimates of all expected credit losses, as opposed to truncated, arbitrary portions of credit losses expected by management. 

“An expected credit loss model that consistently provides an allowance for all expected credit losses results in the simplest expected credit loss model for investors to understand and use in their modeling,” FASB said. “For a highly subjective estimate such as the allowance for credit losses, such a model provides the most comparable information to investors by relying on a single measurement objective (as opposed to expecting that investors will be able to make comparisons between entities when each entity uses a model with more than one measurement objective and a subjective threshold for determining when the various measurement objectives are applied by that entity).” 

Whitepaper on CECL proposal

See all of the FAQs and FASB’s answers here. Or download a Sageworks whitepaper for more information: FASB’s CECL Model: How it will impact ALLL.

And for updated regulatory guidance, questions, discussions or latest news on the allowance for loan and lease losses, join the LinkedIn group: ALLL Forum for Bankers.

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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