How to explain the expected impact of CECL on your financial statements
While compliance for the CECL (Current Expected Credit Loss) standard is two years away, banks, insurers, and specialty finance companies need to ensure they are looking at all factors that affect implementation. As these institutions are looking at things like modeling methodologies and accounting processes, it is very easy to overlook the importance of your current disclosures on your interim and annual financial statements.
The U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 74 (SAB 74), codified in SAB Topic 11.M, requires public companies to disclose details of how recently issued accounting standards such as CECL, will affect its financial position and operations after the standard is adopted. KPMG’s recently released Meeting your CECL SAB 74 disclosure responsibilities: How to explain the expected impact of CECL on your financial statements, provides an understanding of the disclosures to consider in your financial statements and what can be expected.
January 2020 may seem like a long way off, but time is running short for banks, insurers, and specialty finance companies to address the new credit loss recognition model required by one of the farthest-reaching accounting standards in recent memory: the Current Expected Credit Loss (CECL) standard. Your institution is probably preoccupied with assessing which areas are impacted by the standard or may already be entangled in the complexities of overhauling your modeling methodologies, accounting processes, supporting technology infrastructure, and governance framework.
These are clearly important priorities for your institution. But be forewarned: the magnitude of the overall CECL implementation effort may cause you to overlook an even more urgent issue—your current disclosures on your interim and annual financial statements related to how CECL may impact your financial position and operations upon adoption.