New Disclosures under CECL
New disclosures under CECL, the current expected credit loss model, might not be the top concern of financial institutions shifting to the updated accounting standard in 2023. Still, revisions to existing disclosures and developing the new disclosures required by CECL are important in complying with the switch from the incurred loss method.
Importance of new disclosures
Boards, shareholders, and auditors alike will want to know CECL’s impact and how the bank or credit union has determined the impact of the expected loss model. As they always have when institutions have reported under the incurred loss method, stakeholders and others will want to know how the allowance for credit losses has changed within the reporting period. In addition, CECL won’t change the desire of financial statement users and examiners to know about the credit risk within the portfolio, including how the bank or credit union measures credit quality.
Financial statement disclosures about CECL play a central role in providing all of the above information, which is required by the new standard. That’s why it’s important to be thinking now about new disclosures under CECL and how existing disclosures might change, according to several CECL experts.
Disclosure work can be 'significant'
Even though it’s best to begin work on disclosures early in the transition, in practice, CECL disclosures are often one of the last things financial institutions seem to address, despite good intentions. Banks and credit unions can be so focused on selecting CECL methodologies and developing the quantitative output for the calculation, as well as making qualitative adjustments and addressing other aspects of the accounting standard, that disclosures aren’t dealt with until late in the process, according to Gordon Dobner, Partner in BKD’s National Financial Services Group.
“And in any major standard shift like this, the disclosure piece can be significant,” Dobner said during the recent Abrigo ThinkBIG Conference.