CECL: Presentation and Disclosure
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In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (Topic 326), (ASC 326) which significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model which will be based on an estimate of current expected credit loss (“CECL”); and provides targeted improvements on evaluating impairment and recording credit losses on available-for-sale (AFS) debt securities through an allowance account. The standard also requires incremental disclosures.
While banks and other traditional financial institutions will be most affected by the FASB’s new credit impairment model, all entities with balances due or that otherwise have a credit exposure will be impacted. These include companies in the consumer industry, manufacturing entities and other non-financial institutions. As such, these entities are also subject to disclosure requirements of ASC 326. Download BDO’s publication for additional information.