Washington, D.C. – The Conference of State Bank Supervisors (CSBS) released an optional tool today to help financial institutions prepare for new accounting standards changing how banks calculate credit losses.
The tool, known as the Current Expected Credit Losses (CECL) Readiness Tool, provides one possible path for financial institutions to use while preparing for the Financial Accounting Standard Board's (FASB) new accounting rules.
CSBS President and CEO John W. Ryan: "As financial institutions prepare for FASB's new accounting update, state regulators have heard community banks express a clear need: a set of steps to help them prepare. The steps laid out in this tool provide one possible path that a financial institution's management team can take to prepare for these changes."
Information about the CECL Readiness Tool:
- The tool was developed to provide a framework that a financial institution could use to plan for the eventual implementation of these accounting changes.
- At its core, the tool encourages early research, data maintenance, and communication amongst members of a financial institution’s management team.
- There is no regulatory expectation that this tool be used. It is simply offered as an optional resource to plan and prepare for the implementation of CECL. The suggested dates in the tool are suggestions only and are not regulatory expectations or deadlines.
- The tool does not replace or revise any agency guidance related to CECL, nor should it replace advice your institution may receive from your auditor or accounting experts.
- Using current Generally Accepted Accounting Principles, an institution is restricted in its ability to record credit losses that are expected, but do not meet the threshold of "probable." Some institutions and stakeholders asked FASB to enhance standards on loan-loss provisioning to incorporate forward-looking data.
- In response, the Financial Accounting Standards Board's (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326) commonly referred to as the Current Expected Credit Losses (CECL) method on June 16, 2016.
- Under the new CECL model, financial institutions will be required to use historical information, current conditions and reasonable forecasts to estimate the expected loss over the life of the loan.
- CECL will have a significant impact on the way a financial institution estimates and provides for credit losses. It is prudent for institutions to start planning as soon as possible in order to adopt CECL in an orderly manner.