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US Current Expected Credit Loss (CECL) implementation guidance

Insights to help you implement the CECL standard

For some industries, the Financial Accounting Standards Board’s new CECL accounting standard is one of the more challenging accounting change projects in more than a decade. Deloitte can help you get ready.

The impact of COVID-19 on current expected credit losses

The COVID-19 pandemic is affecting economic and financial markets. As efforts are made to address the impacts of the pandemic, virtually all industries and governments are facing challenges from the resulting economic conditions.

Among the challenges are several COVID-19-related accounting implications, including the determination of expected credit losses under the new CECL standard. Many are wondering how to incorporate COVID-19 into reasonable and supportable forecasts, and whether the determination of pools changes as a result of the pandemic. How should companies address impairment models, loss recognition, or cash flow projections under ASC 326?

Learn more about the potential impacts of COVID-19 on expected credit losses and highlight considerations that entities should be thinking through as they adopt the new CECL standard this quarter.

Applying the new CECL standard

The impairment model introduced by the new CECL standard is based on expected losses rather than incurred losses. Under this standard, an entity recognizes its estimate of lifetime expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. The new standard is also intended to reduce the complexity of US GAAP by decreasing the number of credit loss models that entities can use to account for debt instruments.

What are some considerations for companies implementing the new CECL standard? Deloitte’s CECL Roadmap breaks down what companies may want to keep in mind, from scope, through measurement, to disclosure requirements.

CECL overview and a collection of insights to help you prepare for CECL’s impact

The adoption of the CECL standard will likely affect internal controls and the need for data not previously used for financial reporting purposes. Accounting standards implementation is often a finance-only effort, but not CECL. It has many governance, modeling, credit analysis, information technology, and financial reporting interdependencies.

CECL affects all entities holding loans, debt securities, trade receivables, and off-balance-sheet credit exposures and promises to be one of the most significant accounting projects of the next five years. Right now, it may seem like there’s plenty of time to comply with CECL. But the significance and widespread impact of this new standard demands that companies take an early and disciplined approach to CECL implementation.

CECL implementation dates

Not a bank? Not off the hook

The CECL implementation deadline is approaching. Companies should be evaluating how the standard will likely affect them and determine what their next steps should be.

Ten top considerations for the state of your CECL readiness

After two years of working with clients as they prepare for this new standard, we’ve learned that a CECL readiness assessment can provide the clarity, focus, and confidence that are essential to a successful implementation. In “CECL 2019: Finish strong, with confidence,” Deloitte introduces 10 actionable review steps that executives from companies in every industry should consider before beginning the final leg of their CECL journey.

CECL and the banking industry

The new CECL standard will involve and drive changes across numerous facets of your bank’s operations, including accounting/finance, IT, risk, business units, and others. In addition to its major operational implications, CECL is expected to have an equally significant financial impact on impairment estimates, capital ratios, and the volatility of profit and loss.

Banks need to think strategically about CECL’s far-reaching implications and prepare for implementation as soon as possible, lest they fall behind on resource planning and critical deadlines. To help our banking clients get started, Deloitte is sharing its CECL guidance through a collection of topical perspectives and webcasts.

These insights highlight a key area of your business that CECL is likely to affect, with the goal of helping you form a more strategic and comprehensive view of your CECL challenges. From business impact, data management, and credit modeling to risk, governance, and technology, we’ll explore what’s at stake and what you can do to ready your organization for complying with CECL on time and with maximum effectiveness.

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CECL guidance that goes beyond banking

Of course, the challenge to completing a successful CECL implementation extend beyond banking, affecting businesses operating in every industry. Regardless of where your organization may be with its CECL implementation efforts, these Deloitte insights explore topics essential to delivering a thorough, timely, and CECL-compliant process.

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CECL thoughtware

The CECL thoughtware provided below is guidance for any company—not just banking—in the different stages of implementation.

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