Manageable CECL Implementation Timeline

The Current Expected Credit Loss standard (Accounting Standards Update No. 2016-13) or intimately known as CECL, has been a hot topic in the banking industry since the Financial Accounting Standards Board’s first CECL exposure draft in 2012. The CECL standard was issued in June 2016, and while implementation is commonly perceived to be “a ways out,” the time is now to get the plan in place to ensure proper implementation.

As a reminder, the standard has the following effective dates:

  • SEC filers – fiscal years beginning after 12/15/19 (including interim periods) – 2020 for calendar year ends
  • Public business entities, as defined, that are not SEC filers – fiscal years beginning after 12/15/20 (including interim periods) – 2021 for calendar year ends
  • All others – fiscal years beginning after 12/15/20 (interim periods beginning after 12/15/21) – 2021 for calendar year ends
  • Early adoption is permitted for fiscal years beginning after 12/15/18 – 2019 for calendar year ends

The following timeline, which is broken-down into six-month manageable phases, is designed to prevent late-inning scrambling and assumes that the institution is a non-early adopter of the standard and is an SEC filer.

Preplanning – due by June 30, 2017

  • Create a “CECL Committee”
  • Analyze standard and understand where the Bank needs to be
  • Review existing allowance for loss calculation and credit risk management practices to identify processes that can be leveraged

Planning & Research – due by December 31, 2017

  • Develop internally detailed plan and timeline (“road map”)
  • Weigh benefit of modifications to existing approaches, systems and applications versus investing in new
  • Gather data by loan type and determine pools
  • Identify risk drivers for each pool
  • Identify internal and/or external resource needs

Scenarios & modeling – due by June 30, 2018

  • Determine appropriate method to estimate losses for each loan pool
  • Determine and obtain necessary historical loss experience on the pools being evaluated
  • Apply reasonable and supportable forecasts to historical loss experience and current conditions
  • Discuss plans with regulators and auditors

Data testing – due by December 31, 2018

  • Test data integrity of historical loss data, credit risk data, and forecasts
  • Test that forecasts are well supported and used accurately
  • Develop new processes and internal controls for ongoing testing

Parallel runs & validation – due by June 30, 2019

  • Run parallel systems – you should now be able to quantify the estimated effect on earnings and capital upon implementation
  • Manage investor expectations
  • Prepare to disclose the impact of adoption
  • Consider impact on forecasting, budgeting and capital planning
  • Refine documentation of the allowance for loss calculation and have documentation ready to hand over to regulators and auditors
  • Ensure regulators and auditors are “on board” with plan

Monitoring & final – due by December 31, 2019

  • Monitor regulatory interpretations and application of standard
  • Establish a recurring plan for ongoing monitoring and refinement
  • Prepare to implement as of January 1, 2020

As indicated in the above timeline, the first deadline is June 30… Is your institution on track?

Baker Newman Noyes’ professionals in our financial institutions practice are dedicated to remaining current on the regulatory and accounting trends impacting our clients, and to keeping our clients informed of those trends and how they might impact our clients’ businesses. Should you have questions about CECL, the implementation systems and procedures in preparation for CECL, or any other areas in which we can be of assistance, please contact your BNN advisor at 800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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