CECL 2023: Current and Expected Credit Loss for Non-Financial Institutions
In 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance to estimate credit losses on financial assets, with staggered effective dates commencing in January 2020. While banks and other traditional financial institutions will be most affected by the FASB’s new credit impairment model for financial assets based on current expected credit loss (“CECL”), all entities with balances due (e.g., trade receivables) or that have an off-balance-sheet credit exposure (e.g., financial guarantees) will be impacted. These include companies in the consumer and retail industry, manufacturing entities and other non-financial institutions.
We have summarized the key aspects of the CECL standard typically applicable for non-financial institutions into three separate areas:
- Background / Components
- What is/not included within the scope of CECL
- General questions
Current Expected Credit Loss for Non-Financial Institutions
What is CECL and What's Changed?
This accounting standard replaces the “incurred loss” model with a forward-looking expected credit loss model to provide more comprehensive information about credit risk.
What Is/Not Included in the Scope?
CECL requires financial institutions to estimate the expected credit losses over the life of a financial asset, taking into account a range of factors such as past events, current conditions, and reasonable and supportable forecasts.
Frequently Asked Questions
Common questions surrounding CECL, including how it will impact loan loss provisions, how it will affect the timing and amount of credit loss recognition, and how institutions should prepare for its implementation.
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The new Current Expected Credit Loss (CECL) Standard is effective during 2023 for most private companies which requires credit losses on most financial assets to be carried at amortized cost.