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 2020 -2022, depending on your entity type. That seems like a lot of time, but there is still plenty to do in advance as described below.
McQueen Financial Advisors CECL Reporting Includes:
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.
CECL Support Actions:
For clients who choose to calculate CECL internally, we will provide the following support:
- We will track unique data sets that will help us predict the likelihood of a loan default by loan type;
- The data points will be incorporated into an analysis of the factors leading to a loss.
- We will help you predict the severity of loan losses, by loan type.
- We will help you identify logical groupings of loans and attributes of loans that will allow you to predict the severity of the losses, the timing of the losses and the likelihood of a loss recovery.
We will help you use your loss experience and expected losses to help you manage your business.
- We will consider economic conditions that existed when past losses occurred, and economic position when loans were written.
- Key indicators we examine will include the unemployment rate, interest rate environment, housing values, commercial occupancy rates or other factors that may be unique to you and your markets.
- Our model will track this information for you as we relate trends and economic conditions to losses to support estimated future losses.
- We will perform CECL review and validation.