CECL Education

The Issue of Recoveries and the Proposed ASU – Codification Improvements – Financial Instruments

This is a second in a series of blog posts about the proposed ASU for codification improvements to ASU 2106-13, better known as the CECL standard. Click here to see the initial post in the series and to read some background on the proposed ASU. Issue 1C: Recoveries The issue of the treatment of recoveries of previously charged off amounts has been an ongoing topic of discussion. It was discussed at the June 11 TRG meeting, discussed again at a subsequent August FASB board meeting, then discussed again in the November 1 TRG meeting. Two main issues were brought up and deliberated around this: Inclusion of Recoveries in the ACL Estimate Some preparers did not feel that the standard was clear on if recoveries should be included in the estimate of expected credit losses. Many financial institutions use net charge-off rates today, that is, loss rates that include both the charge-offs as well as any subsequent recoveries, which theoretically produces an allowance that is net of those amounts today. There were also some questions about which types of recoveries should be included in the estimate, and if recoveries were required to be considered, or if that was optional. Some of these questions were based on the difficulty in obtaining data related to recoveries. Negative Allowances Related to the question above, if recoveries are included in the estimate of credit losses, then this could result in allowance amounts at either the loan or segment level that could at times be negative. Examples were given of banks who had very high levels of losses during the financial crisis where the subsequent recoveries of these amounts resulted in net recoveries in the years following the crisis. Preparers felt that clarification was necessary considering this definition [...]

2019-02-13T18:31:07+00:00January 28th, 2019|Blog, CECL, CECL Accounting, CECL Education|

CECL Panel: Answers to Your Top CECL Questions

October 10, 2018 | 2:00 - 3:30 p.m. ET Presented by MST, Sageworks, Grant Thornton, BKD and PWC Lenders are knee-deep in their transition to CECL and encountering challenges at every turn. In "Answers to Your Top CECL Questions," our panel of auditors from Grant Thornton, BKD and PWC, and CECL consultants from MST and Sageworks will discuss CECL and its enterprise-wide impact and respond to your questions. The panel is comprised of Regan Camp, MST; Neekis Hammond, Sageworks; Gordon Dobner, BKD; John Reedy, Grant Thornton; and Mike Shearer, PWC. To Access the Recording, click here.

2018-10-30T16:12:17+00:00September 14th, 2018|CECL, CECL Education|

Five Things to Remember in Your Transition to CECL

Our 2018 blogs have focused on providing information relevant to your transition to CECL. In looking back over the year’s blogs to date, we revisit five things to remember in your transition to CECL. 1) There is typically no better place to start in preparing for CECL than your incurred loss methodology of today. […]

Confessions of a Data Analyst

The implementation of CECL has been called the biggest change in financial institution accounting . . . ever. Under current U.S. GAAP, financial institutions account for losses based on historical events or incurred losses. Beginning in the first quarter of 2020, financial institutions must look at the past as well as the future over the full lifetime of a loan. […]

Your CECL Committee: Who’s Invited?

For financial institutions, the path to CECL compliance starts with establishing a CECL committee, whose job it is to guide the institution through the process of transition to estimating their allowance in compliance with the new Current Expected Credit Losses accounting standard. Broad committee representation is recommended because CECL will require input from more departments of the institution – that is, more people and positions will participate, at some level, in the CECL allowance process. […]

CECL Nears, Priorities Are Changing

As CECL nears, institutions must re-think their preparation processes.  Time marches on. And CECL lies in wait. And as the former grows shorter and the latter nearer, priorities are changing for the financial institutions that will be required to adhere to the new allowance accounting standard. […]

Looking into the Shadows for CECL Clarity: Shadow Loss Analysis

On April 17, Chris Emery, MST senior advisor – engineering and director of special projects, walked webinar attendees through a discussion of testing and experimenting with potential CECL methodologies and the Shadow Loss Analysis feature of the Loan Loss Analyzer allowance automation software that streamlines the process. Following are some of the highlights of Chris’s presentation. […]

It’s crunch time.

SEC filers will start estimating their allowances according to CECL as of the first quarter of 2020, just a little more than a year and a half from now. Considering they will want to run parallel incurred loss and CECL methodologies for several quarters – a year is recommended – most lenders, including private companies, are knee-deep in preparations, setting up transition committees, gathering data, studying methodologies. […]

CECL Is a Process Not an Event

CECL should be looked at as a process and not an event. We transition today toward CECL implementation on principles-based guidance. But through time and eventual practice, auditor opinion, and regulatory enforcement, the allowance will evolve to a more intense and sophisticated process, manipulating our assumptions, analyzing our numbers, understanding our trends as we continually refine our models and methods to enhance our knowledge and improve portfolio performance. […]

2018-10-24T11:23:14+00:00April 13th, 2018|Advisory, Analytics, CECL, CECL Education, Model|