US FASB’s Current Expected Credit Losses Model
The Financial Accounting Standards Board (FASB) has finalised the new accounting standard relating to Financial Instruments – Credit Losses. Measurement of Credit Losses on Financial Instruments will replace the existing incurred losses methodology for estimating allowances with a Current Expected Credit Loss methodology (CECL). Under CECL, firms will be required to use historical information, current conditions and reasonable forecasts to estimate the expected loss over the life of the loan. These impact regulatory calculations and reporting requirements covered by Lombard Risk AgileREPORTER.
The new accounting standard CECL applies to all banks, savings associations, credit unions and financial institution holding companies regardless of asset size. Firms must apply the new credit losses standard in their financial statements and regulatory reports (e.g. the Call Report) when the new standard kicks in. Until the effective date of the new accounting standard, institutions should continue using the incurred losses model to estimate allowances as required by current accounting standards.
The new standard will not be effective until 2020 for institutions that are required to file financial statements with the U.S. Securities and Exchange Commission or the appropriate federal financial institution regulatory agency under the federal securities laws, and 2021 for all other institutions; early adoption is allowed from 2019.
These impact regulatory calculations and reporting requirements covered by Lombard Risk AgileREPORTER.
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