CECL Implementation

Overview

On November 15, 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2019-10 which extends the effective dates of CECL to January 1,2021 for smaller public business entities (as defined by the SEC) and January 1, 2022 for nonpublic business entities. Furthermore, Section 540 (Extensions of Temporary Relief and Emergency Authorities) amended Section 4014 of the CARES Act.  Entities that have not previously adopted and were preparing to adopt on Dec. 31, 2020 now have until the earlier of a) the first day of the financial institution’s fiscal year that begins after the date on which the national COVID-19 emergency terminates or b) January 1, 2022.  This is effectively another year of deferral for calendar year end entities, which can now adopt for 2022.

The time between now and the revised implementation dates should be used wisely to develop a holistic understanding of your data and data strategy and determine how to manage the new process efficiently. Use this time to gather historical data and begin regression analysis and forecasting and to determine the tools needed to be successful. Having the right data – and enough data – will be key to implementing the new standard.

CECL is a forward-looking methodology that considers a broader range of reasonable and supportable information in estimating credit losses. The transition to CECL will impact institutions’ financial results and have major implications on data, modeling, and analytics requirements. Further, it will likely result in a fundamental re-evaluation of portfolio composition and business strategy.

Applying CECL is a multistep process—and one that can be difficult to achieve without a specialized and experienced team. Our professionals can help you apply the standard from start to finish, taking your current and future needs into account.

Here are a few of the services we provide:

  • Data inventory assessment for quality and completeness
  • Segment level methodology development
  • Economic forecast scenario development
  • Modeling
  • Testing and validation
  • Documentation
  • Updating or developing policies and procedures
  • Internal control over financial reporting.