CECL will supersede the current “incurred loss” model for accounts receivable, loans, held-to-maturity securities and other financial assets measured at amortized cost. The new model is expected to significantly impact banks’ allowance for loan losses calculation by requiring banks to use a combination of historical data, current conditions, and estimated expected loss over the life of a loan. It is anticipated the new model will increase data requirements and involve a more comprehensive methodology compared to the current model. The increase in requirements and complexity of the new methodology will vary among banks, subject to each bank’s loan portfolio risk and lending practices.
The new standard will become effective the first quarter of 2021 for banks that are not Securities and Exchange Commission (SEC) filers. All banks are allowed to early adopt the new standard beginning the first quarter of 2019.
We will continue to provide updates related to FASB’s guidance on this topic as it becomes available. Please stay connected with us for additional insights on the new standard.