Investors Want a Clear Story on CECL. Are CFOs Ready to Tell It?

Financial and non-financial institutions alike are nearing adoption of the Financial Accounting Standards Board’s new Current Expected Credit Loss (CECL) standard, which will take effect at the beginning of the next fiscal year for most public companies. Considered to be one of the most impactful ac...

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Bibliographic Details
Published inCFO.com
Main Authors Norwood, Gregory, Vollertsen, Troy
Format Trade Publication Article
LanguageEnglish
Published New York CFO.com 23.10.2019
Subjects
Accounting changes
Chief financial officers
Disclosure
Economic forecasts
Estimates
Financial institutions
Investments
Leadership
Public companies
United Kingdom > UK
United States > US
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Summary:Financial and non-financial institutions alike are nearing adoption of the Financial Accounting Standards Board’s new Current Expected Credit Loss (CECL) standard, which will take effect at the beginning of the next fiscal year for most public companies. Considered to be one of the most impactful accounting changes for U.S. financial institutions in decades, the new guidance — which applies to any company that extends credit — requires companies to measure expected losses over the estimated life of a loan using reasonable and supportable economic forecasts. Drive the in-depth conversation with probing questions, including the following: * “What goldilocks level of disclosure will best communicate the critical aspects of CECL?” Create an internal disclosure control group to provide independent feedback from an investor’s perspective. * “What linkage should exist between credit quality indicators and portfolio allowance calculations?” Consider whether linking these two FASB disclosures would help provide transparency to CECL results. * “Do we have the right information available to support the required period over period change disclosures?” Review the information the company will use to support the describe-and-discuss narrative disclosures. * “Do any qualitative adjustments impact disclosures to our investors?” Review the qualitative adjustments to the CECL model results, including any adjustment for forecast variability.