Current Expected Credit Loss Reporting
The Current Expected Credit Loss (CECL) standard is the new accounting model for recognition of credit losses for both loans and investments. CECL requires all financial institutions to record estimated lifetime credit losses for debt instruments, leases, and loan commitments. The probability threshold used to determine the allowance for loan and lease losses is removed. The standard requires losses to be recorded on day one. The standard is scheduled to be implemented in 2022 -2023, depending on your entity type. That seems like a lot of time, but there is plenty to do in advance, as described below.
McQueen Financial Advisors CECL Reporting
We offer a full range of services and tools to guide you through the accounting change. The standard does not require a specific credit loss method; rather, it allows entities to use judgment in determining the relevant information and estimation methods that are most appropriate. One important early step will be to determine the most appropriate measurement method. For most institutions, the MFA CECL Solution will utilize the CECL-compliant and regulatory-approved Weighted Average Remaining Maturity (WARM) method.
MFA CECL Solution Actions
For clients who choose to outsource their CECL process, McQueen Financial Advisors will provide a turnkey CECL solution. Estimating CECL starts with a detailed analysis of historical loan-level attributes, including losses by loan type. It is important to start collecting and saving information now. There is no such thing as having too much data. MFA’s CECL Solution will also include current conditions and forecast adjustments. All of this is brought together in a reporting package that will fulfill your responsibility for developing, maintaining, and documenting a comprehensive, systematic, and consistently applied process for determining the CECL allowance amount.
McQueen CECL Support Actions
For clients who choose to calculate CECL internally, we can provide a variety of support services:
- Loan segmentation assistance
- Review of internally prepared loan segmentation, controls, process, policies, model calculations, documentation, and support
- Current conditions adjustment review
- Forecast factor selection review considering past loan performance and correlation to economic conditions
- Overall CECL review and validation
Let’s Move Forward
The MFA CECL Solution is straightforward and easy to use. We would be pleased to provide you with a sample McQueen CECL report and proposal of services. We also look forward to discussing your unique needs and our capabilities.