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3 Key Details for a Successful CECL Implementation

Current Expected Credit Losses (CECL) is a financial accounting standard introduced by the Financial Accounting Standards Board (FASB). It replaced the Allowance for Loan and Lease Losses Standard with the CECL method. As a result, future expected losses will be determined based on the borrower’s credit history, borrowing conditions, and the projected performance of the business.

Because CECL impacts common assets such as accounts receivable from sales transactions, CECL impacts nearly every business. Small businesses may especially feel the impact, particularly when they need to qualify for a loan.

After several client engagements that addressed CECL, there have been three key similarities in implementations that went smoothly. The company:

• Understands the implementation requirements
• Has the ability to promptly provide necessary information for assessing data sets and prepare a quantitative analysis to determine the current expected credit loss
• Has disaggregated information readily available to assess different risk pools

When these three items are present in an engagement, auditors more frequently agree with the conclusions and computations related to CECL adoption analysis, resulting in minimal edits to CECL service deliverables.

By comparison, implementing CECL is more difficult when a company provides data sets that are not properly disaggregated. This often requires compiling necessary information to properly assess different risk pools, potentially expanding project budgets and timelines. Addressing CECL as early as possible in the audit process is key to avoid experiencing delays in issuing financial statements while CECL evaluations take place.

How Centri Can Help

At Centri, our technical accounting experts work as an extension of your team to save you time and effort in developing a robust CECL model. This model supports disclosures in financial statements regarding whether the adoption of CECL materially impacted those statements. In some cases, Centri’s analysis includes a technical accounting memorandum documenting the adoption and assessment of ASC 326’s impact on relevant financial instruments. This documentation encompasses required journal entries, financial statement disclosures, and the CECL model. Ultimately, auditors find this comprehensive approach facilitates a smoother audit process, saving both time and money. Contact us to learn how we can assist your company with a successful CECL implementation.

Blake Roberts

Partner | Technical Accounting Practice Leader | CPA

Blake is a Partner at Centri Business Consulting and the leader of the firm’s Technical Accounting Practice. He has more than 18 years of public accounting experience. View Blake Roberts's Full Bio