FASB to issue final guidance on CECL model
**The FASB issued the final CECL standard on June 16, 2016. For up-to-date information and resources, access the updated CECL Prep Kit.
During a recent Financial Accounting Standards Board (FASB) meeting, two key decisions were announced related to the Current Expected Credit Loss (CECL) model.
The FASB is currently discussing the proposed Accounting Standards Update, Financial Instruments-Credit Losses (Subtopic 825-15), with the goal of developing final guidance for the impairment of financial assets. The March 12th meeting minutes call for the final ASU to be issued in the second half of 2014.
The other key decision made states that the current CECL model should apply to all financial assets. This means all public and private financial institutions will be subject to the new requirements once announced and implemented.
The proposed CECL model, originally released in December 2012, has been a topic of much debate. In its present form, it will require institutions to recognize an immediate allowance for credit losses that represents all expected losses. The OCC’s Thomas Curry is on record stating the model will likely increase a bank’s ALLL reserve by 30-50 percent.
This model will require the gathering, archiving and computing of up to 1,000 times more data than most existing ALLL methodologies; banks will need granular, loan-level data to comply.
The good news is there are ways banks can prepare for the CECL model now. As discussed in a recent webinar, institutions can improve their data collection processes and increase data integrity before the changes are finalized and implemented. The sooner the required loan-level data is collected, the more defensible an ALLL calculation will be under the new model. This defensibility will help lessen the potential allowance increase.
To learn more about the data requirements and how to prepare, download the FASB CECL prep kit.
By Billy Burnet, marketing coordinator at Sageworks