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Observations from CECL Adoption

Companies that have not yet adopted ASC 326 – Current Expected Credit Losses (“CECL”) are required to adopt for fiscal years beginning after December 31, 2022. A common misconception of CECL is that it has no impact on a company’s financial statements. For most companies generating revenue, there is more likely than not an impact on their accounts receivable and the method and data used to estimate the allowance for doubtful accounts. 

A common method of how a company may record its allowance for doubtful accounts is by applying a percentage to the various aging buckets to develop its accounts receivable reserve. The credit loss percentages are often not updated or revisited, which does not comply with the concepts within the CECL framework. Developing an appropriate model that complies with the CECL framework requires effort in obtaining historical data, analyzing the historical loss percentage to apply to the various aging buckets, and analyzing risk pools and considering the impact of current conditions and forecast if receivables or contract assets are of a long-term nature.

How Centri Can Help

At Centri, our technical accounting experts work as an extension of management to save you time and effort in developing a robust CECL model to support your disclosure in your financial statements and determine whether or not the adoption of CECL had a material impact on the financial statements.

Our analysis includes a technical accounting memorandum documenting the adoption and assessment of the impact of ASC 326 on the related applicable impacted financial instruments, including required journal entries, related financial statement disclosures, and the CECL model, which will ultimately be analyzed by the auditors. By partnering with Centri, we can facilitate a smoother and more efficient audit. Contact us to learn more about how we can help your company successfully adopt CECL.

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

Dan Owens

Senior Director | CPA

Dan is a Senior Director at Centri Business Consulting. He has more than 35 years of accounting advisory, public and industry accounting experience, serving public and privately-owned companies with domestic and multinational operations. View Dan Owens's Full Bio

Michael Kirchner

Managing Director | CPA, MBA

Mike is a Managing Director at Centri Business Consulting. He has more than 16 years of accounting, advisory, and audit experience. View Michael Kirchner's Full Bio