Contact Information Matthew Schell is a partner with Crowe Horwath LLP in the Washington, D.C., office. He can be reached at 202.779.9930 or matthew.schell@crowehorwath.com. This article was published by Bank Director in April 2015 and is reproduced with permission. prepayments but not considering renewals or modifications unless the entity expects to execute a troubled debt restructuring (TDR). This new focus on payment speeds outside of an ALM calculation might be a challenge for some financial institutions in terms of both data availability and capability. The FASB is focusing on making CECL as flexible as possible and is retaining other items that had been incorporated in the incurred loss model. For example, the allowance calculation still includes “relevant quantitative and qualitative factors” based largely on the business environment and similar factors that relate to their borrowers (such as underwriting standards).

However, the CECL model is different from today’s incurred loss model because it removes the “probable” threshold and accelerates the recognition of losses. What Are Some Other Changes? â– â–  Purchased credit-impaired (PCI) assets. The FASB is changing the definition of PCI and generally is simplifying the PCI model overall to require immediate recognition of changes in expected cash flows. â– â–  TDRs. At modification, an adjustment will be recorded to the basis rather than as an allowance. â– â–  Disclosures.

The FASB retained the current disclosures with a few additions. For example, the FASB tentatively decided to require credit quality disaggregated by asset class and year of origination (in other words, vintage), subject to staff outreach. What About Transition? Once the standard is adopted, there will be a cumulative-effect adjustment to the balance sheet (credit allowance, debit retained earnings). For debt securities with recognized impairment, previous write-downs are not reversed.

For PCI assets, an allowance is established with an offset to cost basis. What Is Next? At the March 11, 2015, meeting, FASB staff received permission to begin drafting the standard. The FASB will discuss at a future meeting any remaining issues identified during the drafting process, cost-benefit considerations, and the effective date. What Does My Financial Institution Need to Do Now? Top on the list for any financial institution is to begin to think about what data would be necessary to develop better forward-looking estimates of expected cash flows and whether that data currently is being retained. Published by Crowe Horwath LLP in April 2015. Crowe Horwath LLP is an independent member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member.

Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. This material is for informational purposes only and should not be construed as financial or FS15902-10A legal advice. Please seek guidance specific to your organization from qualified advisers in your jurisdiction.

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