CECL, or current expected credit loss, is a new accounting standard that estimates expected credit losses by using historical information, current conditions and reasonable forecasts. CECL is considered one of the most significant accounting changes in decades to affect entities that borrow and lend money.
CECL done right
1. How can we help with CECL?
Experian and Oliver Wyman’s CECL solution, the Ascend CECL Forecaster™, delivers compliance in a click. Built with lenders of all sizes in mind, it includes the data you need for required historic modeling, consulting for modeling expertise and loan loss calculation. And on top of it all, it’s easy to use, easy to read and easy to report – making compliance a breeze. CECL Forecaster is powered by AWS EMR and built on robust and scalable AWS Infrastructure.
With required reserves anticipated to increase due to the new CECL standard, every percentage point matters.
This powerful combination of Oliver Wyman’s analytics and Experian’s Ascend Technology Platform™ will help you comply with CECL and understand the impact to your business. Additionally, you can leverage these findings to improve overall profitability and maximize the dollars available to you to reinvest into growing your organization.
2. What is CECL?
The CECL model is the new Financial Accounting Standards Board (FASB) standard for estimating and measuring credit losses for loans and debt securities. CECL is a change from the current incurred-loss model and brings with it significantly greater data requirements, including historical data for the life of the loan.
Preparing for and implementing CECL will compel financial institutions to think about credit risk in new and more timely ways and to either recalibrate existing models or develop new ones. Critical components to manage during CECL implementation include data preparation, loan segmentation, methodologies selection and process validation.
How much time do you have?
CECL has different effective dates based on the type of reporting entity. Public business entities that file financial statements with the Security and Exchange Commission will have to comply by 2020, and smaller publicly traded banks (defined by the SEC as smaller reporting companies), as well as privately held banks and credit unions must adopt the new standard by 2023.
What is CECL replacing?
CECL replaces the current Allowance for Loan and Lease Losses (ALLL) accounting standard. Under CECL, entities are required to account for expected losses over the estimated life of the loan, while the existing model relies on incurred losses.
The FASB has high hopes for CECL, stating that the new standard will improve "financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations."
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