Mazars evaluates US Current Expected Credit Losses (CECL) models through the covid-19 crisis
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CECL models review through the covid-19 crisis
The Financial Accounting Standards Board’s new CECL accounting standard went into effect on 1 January 2020 for institutions that were public business entities and SEC filers excluding smaller reporting companies (SRCs). At the onset of the covid-19 pandemic, the government introduced several regulatory rules that aimed at providing relief to organisations both from a financial reporting perspective and a regulatory capital perspective.
Mazars conducted a review of 12 banks that implemented the CECL standard. The analysis is based on interim financial statements as of 30 June 2020, focusing on the following areas:
Quantitative assessment:
- Opening balance impact of CECL adoption
- Trends of ACL (Allowance for Credit Loss) as a percentage of gross loans
- Impact on operating profit due to CECL implementation
- Accumulation of credit reserve build due to volatility and foreseeable instability
- Evaluation of non-performing loans due to delinquencies
Qualitative assessment:
- Governance and oversight
- CECL implementation methodology
- Data quality including macroeconomic variables used
- Reasonable & supportable forecast period
- Reversion method
- Other accounting treatment interpretations
- Regulatory considerations
Top findings:
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