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Introducing Seven Steps 2.0

Brandy Aycock
April 14, 2017
Read Time: 0 min

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


To help financial institutions prepare for transitioning their allowance methodology from an incurred loss model to CECL (current expected credit loss), we have introduced “Seven Steps to a CECL-Compliant Model” in May 2016. With seven comprehensive steps, this whitepaper has been viewed hundreds of times, helping banks and credit unions organize and plan for their eventual move to CECL.

Now, an updated and enhanced version of this guide, “Seven Steps 2.0,” includes additional preparation designed to better support institutions as they develop an expected loss allowance model.

What Are the Seven Steps?

We have designed the Seven Steps as an easy to follow path as financial institutions convert the ALLL to CECL. Since the Financial Accounting Standards Board or FASB first introduced the standard in 2011, we have worked with lenders and auditors in an effort to help banks and credit unions plan their transition process. The Seven Steps are the results of that effort and include:

1. ALLL Automation

2. CECL Modeling

3. Develop Reports

4. Document Process

5. Assess Impact on ICFR

6. Capital Planning

7. Audit and Regulatory Approval

The Seven Steps began as an effort to better understand what our clients will need to do in order to become compliant.  It has since evolved into a blueprint used by both our advisors and institutions looking to tackle the transition on their own. No matter which camp you fall into, this guide is an invaluable resource when designing your initiative and explains what you need to do and how long each step should take.

What Can You Expect From Seven Steps 2.0?

“Seven Steps 2.0” encompasses feedback that we have received over the past year as well as additional preparation including:

• The formation of a CECL Steering Committee

• A gap Analysis conducted by the committee

The purpose of forming a CECL Steering Committee is to create a way for the departments most affected by CECL to oversee its implementation and measure its impact. Participants will vary by institution, but the committee’s goal will be to evaluate and adjust the processes needed to make CECL a success.

One of the CECL Steering Committee’s primary goals is to perform a Gap Analysis, determining which changes in data collection are needed to meet the essential elements of CECL. The CECL model requires far more data than the incurred loss model, and it’s paramount that lenders take steps to unify their processes and systems to fully collect high-quality data.

How the Seven Steps Can Help

Developing a compliant model is not an easy task. In the words of Steven Merriett, Chief Accountant of the Federal Reserve System, transitioning from the ALLL is “going to take a ton of work.”  Planning and implementing new methodologies will require months of work before fully understanding that what CECL both requires and produces is of prime importance for financial institutions.

The Seven Steps was designed as a roadmap for all stages of planning and transitioning as well as a means to measure progress.  Used in conjunction with the Timeline Calculator, banks and credit unions are now able to outline their specific path as well as track its development as compared to commonly accepted timeframes.

Making the move from ALLL to CECL is daunting. “Seven Steps 2.0” plus the Timeline Calculator will make the process easier to manage for you and your institution.

About the Author

Brandy Aycock

Brandy Aycock is Director of Event Marketing at Abrigo.

Full Bio

About Abrigo

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.

Make Big Things Happen.