September 13, 2019

Current Expected Credit Loss - Is Your Institution Ready?

Leading up to the economic crisis in 2009, institutions and financial statement users expressed concerns that the current accounting standard (probable threshold and incurred notion) restricted the ability to record credit losses that are expected of financial assets.

The existing incurred loss methodology delays the recognition of credit losses on loans. After the economic crisis, various stakeholders noticed that the existing approach delayed the recognition of credit losses on loans and resulted in loan loss allowances that were too small and too late.

These stakeholders requested that the Financial Accounting Standards Board incorporate loan loss provisions to a forward looking approach. On June 16, 2016, The Financial Accounting Standards Board’s (FASB) proposed a revised Current Expected Credit Losses (CECL) accounting standard to replace the current “incurred loss” impairment approach.