Allowance for credit losses & CECL

Make the adaptations for CECL in time

The replacement of the incurred loss model with the current expected credit loss (CECL) model means the clock is now ticking for you to calculate allowance for credit losses differently. It also brings change for your data collection processes. Our deep understanding of this standard – and the requirements and deadlines that go with it – allows us to help you plan for and implement its adoption in your accounting and financial reporting and data collection.
Making the CECL transition

Timing considerations 

Option to delay current expected credit losses (CECL)

CARES Act provides option to delay GAAP provisions

On April 3, 2020, the chief accountant of the Securities and Exchange Commission (SEC) issued a statement noting the CARES Act provides the option to temporarily defer or suspend the application of two provisions of GAAP and would be in accordance with GAAP. The two provisions of the act are Section 4013 and Section 4014, “Optional Temporary Relief From Current Expected Credit Losses.”

As such, eligible registrants can elect to take the delay. Registrants must make the election for the first quarter.

During the delay, a registrant would continue to use the incurred loss model for the allowance for loan and lease losses (ALLL) for each quarter. The delay ends the earlier of the termination of the national emergency or Dec. 31, 2020.

Based on consultation with the SEC staff, the following illustrates when the delay ends and how transition occurs:

  • If the national emergency terminates on June 5, 2020, adopt CECL that quarter (June 30, 2020), retrospective to Jan. 1, 2020.
  • If the national emergency terminates on Nov. 1, 2020, adopt CECL that quarter (Dec. 31, 2020), retrospective to Jan. 1, 2020.
  • If the national emergency does not terminate by Dec. 31, 2020, adopt CECL as of Dec. 31, 2020, retrospective to Jan. 1, 2020.

The result is all calendar year registrants will reflect CECL in their 2020 Form 10-K.

On Nov. 15, 2019, the Financial Accounting Standards Board (FASB) had updated the effective date of the CECL standard for certain small public companies and other private companies. The revised effective dates of the standard they updated at that time were as follows.

ASU 2016-13 (credit impairment) effective dates

SEC filers,1 excluding smaller reporting companies (SRCs) All other entities, including SRCs2
Fiscal years beginning after Dec. 15, 2019 Fiscal years beginning after Dec. 15, 2022

1 As defined by the FASB Accounting Standards Codification Master Glossary. The FASB’s decisions maintain the current effective date for Accounting Standards Update (ASU) 2016-13 for Securities and Exchange Commission (SEC) filers other than SRCs but would provide SRCs and all other entities with extra time to adopt ASU 2016-13.

2 Includes all other public business entities (PBEs), including SRCs, private companies, not-for-profit organizations, employee benefit plans, and emerging growth companies that have elected to adopt new accounting standards using private company effective dates. To determine if an entity qualifies as an SRC, the entity would use its status as of its most recent testing date under SEC guidance upon issuance of the codification change.

The FASB reaffirmed its decision to permit early adoption for all entities for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years.

DIY: transition to CECL

Crowe can provide your company with the tools to “do it yourself.”

Transitioning to CECL 

Learn more about our framework for moving to the CECL standard in this five-part video series.

Contact us

With our deep specialization in the financial services industry, Crowe can support your implementation of the CECL model. Contact us today.
Sydney Garmong
Sydney Garmong
Office Managing Partner, Washington, D.C.
Chad Kellar
Chad Kellar
Managing Partner, Advisory