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CECL standard implementation for the consumer industry

What’s at stake?

Companies in the consumer industry may feel the impact of new requirements under the current expected credit loss (CECL) standard if they hold significant financial assets. We address the potential challenges and provide a methodical approach to help prepare consumer industry executives to meet the upcoming deadline.

How will CECL implementation affect the consumer industry?

The Financial Accounting Standard Board’s (FASB’s) current expected credit loss (CECL) standard takes effect for entities that are US Securities and Exchange Commission filers for fiscal years beginning after December 15, 2019.

Why should the C-suites and boards of companies in the consumer industry take notice? Because CECL implementation could be one of the most challenging accounting standards change projects in decades if you have material portfolios in scope. The new standard applies to all companies holding financial assets and net investment in leases that aren’t accounted for at fair value through net income. More specifically, it will impact companies that have financial assets such as loans, debt securities, trade receivables, off-balance-sheet credit exposures, and reinsurance receivables.

Although financial institutions are the most obvious companies affected by CECL—providing credit is core to their business—they’re not alone. Companies in the consumer industry will also face the impact of the new requirements under the standard if they hold significant financial assets, whether they’re involved in extending credit or not. Awareness of this potential exposure, a grasp of the challenges in CECL implementation, and a methodical approach to compliance can help prepare consumer industry executives to meet this fast-nearing deadline.

With deadlines quickly approaching, how prepared are you?

Three types of holdings may present potential issues for companies in the consumer industry:

Common CECL implementation challenges for the consumer industry

From our experience, companies are facing several challenges with CECL implementation, including:

  • The need for a broad gap assessment between the current and future state. Conducting an assessment following the initial scoping can help identify critical components the project plan may be missing. Do we have the right data, people, and technology in place to be compliant by the implementation deadline?
  • No end-to-end view of the CECL estimation process. A comprehensive view of the process requires close integration between risk and finance, which can create uncertainty around governance, roles, and responsibilities. New CECL-driven estimation processes can upend the current view of product profitability.
  • Insufficient data, resulting in delays in modeling and making important decisions. CECL compliance requires a view of a full economic cycle. That cycle can extend beyond typical data retention guidelines, which creates a need to identify data gaps and address them with external data feeds.
  • Siloed work streams with limited cross-work-stream buy-in on critical decisions. Data required for estimation can reside in various places—for example, with the product team, the team managing the data hierarchy and data warehouse, the accounting function, or the risk modeling team. Prior interaction may have been limited and will now require further coordination, complicating the process. The forward-looking element of CECL requires much more data as well as lockstep coordination across these groups in process changes.
  • Resource constraints for the model build, model risk management, and internal controls. If the gap assessment indicates insufficient resources are available for model builds, consumer industry company leaders will need to decide whether to acquire in-house talent or use external providers. In addition, should out-of-the-box technology not meet project requirements, work will be required to align solutions with the company’s risk profile.

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A systematic approach to CECL

Deloitte’s end-to-end CECL implementation model for the consumer industry, along with lessons learned in two years of client engagements, suggests a series of actionable review steps companies can consider as they assess and refine their programs:

Start the conversation

Contact us to learn more about how we can help you more effectively manage your CECL compliance.

Sam Loughry
Audit & Assurance Partner | Consumer Industry Leader
Deloitte & Touche LLP
+1 214 840 1881
Denny Moyer
Audit & Assurance Partner | Automotive Leader
Deloitte & Touche LLP
+1 313 396 3506
Jonathan Prejean
Managing Director
Deloitte & Touche LLP
+1 703 885 6266
Jonathan Rothman
Audit & Assurance Partner | Retail, Wholesale and Distribution Leader
Deloitte & Touche LLP
+1 212 436 6580
Chris Chiriatti
CS Managing Director | Audit and Assurance
Deloitte & Touche LLP
+1 203 761 3039

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The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

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