Financial Services
CECL Implementation
CECL: An Overview
The Current Expected Credit Losses (CECL) standard introduced significant accounting changes to the financial institutions industry—some of the most notable in decades.
CECL modifies how companies evaluate impairment of financial assets and should be applied to nearly any financial asset measured at amortized cost. This includes loans, notes receivables, and even investments in held-to-maturity (HTM) debt securities.
Achieve Your Objectives
Whether you’re interested in fully implementing CECL or just need select resources to get across the finish line, our professionals will help you identify and implement solutions specific to your company’s needs and scope—at every step of the process.
The new standard is principles based, with broad concepts that require companies understand and tailor the changes based on their specific circumstances. Before getting started, we’ll assess your company’s needs and determine an approach, providing you with insight into the following:
- Intricacies of the new standard
- Possible effects on your institution
- How to get the most out of changing requirements
Our Solutions-Based Approach
As methods for adopting CECL continue to evolve, our professionals are committed to helping you navigate the implementation process.
Technical Resources and Expertise
Applying CECL is a multistep process—and one that can be difficult to achieve without an experienced team. Our professionals can help you apply the standard from start to finish, taking your current and future needs into account.
Here are a few of the services we provide:
- Implementation, modeling, and accounting standards expertise
- Technical and IT resources
- Credit risk modeling
- Data analytics and information systems insight
- Accounting implementation
- Financial instrument valuation
- Internal control over financial reporting
CECL Lifecycle
Considering the following questions can help your company determine where in the CECL lifecycle it falls. From there, our professionals can help you hit the ground running.
Asset Class Evaluation and Discovery
- Are you having trouble evaluating asset classes and data availability?
- Have your IT technical assets been identified and have detailed expectations been set?
- Do you need help developing a CECL implementation timeline?
- Do you understand your control environment and have any potential gaps been identified?
Guidance: At completion of this stage, the necessary information has been collected to evaluate asset class risk characteristics and available data to evaluate potential segmentation, pooling, and methodology options by asset class.
Methodology and Model Selection
- Have estimation models been elected and data requirements and solutions been defined?
- Have various CECL model options been reviewed and evaluated and a CECL model selected?
- Are your internal control-related reviews and approvals complete?
Guidance: At completion of this stage, management will have selected the appropriate methodologies to determine credit losses by asset class and have selected the appropriate model(s) to calculate the expected losses by asset
Model Development and Implementation
- Have your CECL models been developed and implemented or an appropriate vendor been selected?
- Has a process been created with the ability to intake required data from source systems and perform transformation procedures that can be ingested by the CECL model(s)?
- Are your model validation resources prepared?
- Have you drafted your financial statement disclosures?
Guidance: At completion of this stage, management will have a developed and implemented model(s) to calculate and report on expected credit losses.
Internal Controls, Policies, and Procedures
- Has your new process been evaluated and relevant key controls been determined?
- Are the accounting policies and procedures drafted?
- Have you finalized accounting, data transformation, and model documentation?
- Have your end users been trained in the transformation tool and model(s)?
- Have you evaluated any potential model validation needs?
Guidance: At completion of this stage, management will have the necessary framework for continued CECL reporting.
Asset Class Evaluation and Discovery
- Are you having trouble evaluating asset classes and data availability?
- Have your IT technical assets been identified and have detailed expectations been set?
- Do you need help developing a CECL implementation timeline?
- Do you understand your control environment and have any potential gaps been identified?
Guidance: At completion of this stage, the necessary information has been collected to evaluate asset class risk characteristics and available data to evaluate potential segmentation, pooling, and methodology options by asset class.
Methodology and Model Selection
- Have estimation models been elected and data requirements and solutions been defined?
- Have various CECL model options been reviewed and evaluated and a CECL model selected?
- Are your internal control-related reviews and approvals complete?
Guidance: At completion of this stage, management will have selected the appropriate methodologies to determine credit losses by asset class and have selected the appropriate model(s) to calculate the expected losses by asset
Model Development and Implementation
- Have your CECL models been developed and implemented or an appropriate vendor been selected?
- Has a process been created with the ability to intake required data from source systems and perform transformation procedures that can be ingested by the CECL model(s)?
- Are your model validation resources prepared?
- Have you drafted your financial statement disclosures?
Guidance: At completion of this stage, management will have a developed and implemented model(s) to calculate and report on expected credit losses.
Internal Controls, Policies, and Procedures
- Has your new process been evaluated and relevant key controls been determined?
- Are the accounting policies and procedures drafted?
- Have you finalized accounting, data transformation, and model documentation?
- Have your end users been trained in the transformation tool and model(s)?
- Have you evaluated any potential model validation needs?
Guidance: At completion of this stage, management will have the necessary framework for continued CECL reporting.
Who We Serve
We provide these services for financial institutions of all sizes—including smaller, less-complex banks with fewer loan types, large regional banks with multistate operations, credit unions, and other consumer and asset-based lending companies.
Next Steps
One of the most challenging aspects of applying the new standard is forecasting future conditions—and their impacts on lifetime expected losses within the loan portfolio. Staying current with changes to the standard can help you adjust your approach as needed.
Resources
To learn more about CECL, its current and forecasted changes, and our unique perspectives, view our CECL Accounting Guide.
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