Mazars evaluates US Current Expected Credit Losses (CECL) models through the covid-19 crisis

The Financial Accounting Standards Board’s new CECL accounting standard went into effect on 1 January 2020 for institutions that were public business entities and SEC filers excluding smaller reporting companies (SRCs). At the onset of the covid-19 pandemic, the government introduced several regulatory rules that aimed at providing relief to organisations both from a financial reporting perspective and a regulatory capital perspective.

Mazars conducted a review of 12 banks that implemented the CECL standard. The analysis is based on interim financial statements as of 30 June 2020, focusing on the following areas:

Quantitative assessment:

  • Opening balance impact of CECL adoption
  • Trends of ACL (Allowance for Credit Loss) as a percentage of gross loans
  • Impact on operating profit due to CECL implementation
  • Accumulation of credit reserve build due to volatility and foreseeable instability
  • Evaluation of non-performing loans due to delinquencies

Qualitative assessment: 

  • Governance and oversight
  • CECL implementation methodology
  • Data quality including macroeconomic variables used
  • Reasonable & supportable forecast period
  • Reversion method
  • Other accounting treatment interpretations
  • Regulatory considerations

 

Top findings:

Document

Mazars_CECL Models review.pdf

Mazars_​CECL Models review.pdf