ALLL Estimation Methods: Comparing the Old and New Requirements
Duration: 90 Minutes
Join our expert, Gary Deutsch, who will provide you with insight into what has changed between the old and new standards and what you need to do now and plan for the future. The Financial Accounting Standards Board (FASB) has released its long-awaited Accounting Standards Update (ASU) titled Financial Instruments-Credit Losses. The phase-in period has been defined and institutions will have time to adjust to the new ALLL estimation methods.
As you plan for the transition to the new ALLL estimation methods, you will need to know what you can keep and what has to change. In other words, what is the difference between the old and new accounting standards for credit losses?
Objectives of the Presentation
The following crucial issues will be discussed:
Why Should you Attend
- The implications of the FASB's proposed CECL model
- What is changing from current GAAP
- Methods that could be used to comply
- How an allowance for expected credit losses estimate could increase from current levels
- What data and documentation you will need to begin collecting now
- Changes needed to your ALLL estimation process
Here is the most obvious difference. Your ALLL estimate is likely to increase when you have to follow the new estimation approach. Reasons why include:
- For commercial loans and commercial real estate loans, you will no longer wait until a loan is considered to be “impaired” to include a loss estimate in the ALLL. Instead, a loss estimate will be needed when the loan is underwritten. Furthermore, the loss estimate will be for the life of the loan which means you will need to project potentially substantial losses for loans you just booked.
- When you make loan commitments to borrowers now, any loss estimates related to those commitments are included in a contingent liability on the institution's balance sheet that often goes unnoticed. Under the new ASU, those loss estimates will need to be included in the ALLL estimate starting with when you book the loan. This will require another increase in the ALLL and reduction to profits and capital.
- When you estimate losses now, you only have to determine which loans have “inherent” losses as of the date of your financial statements. This accounting concept means that you have to look backwards from the financial statement date and use historical loss data to only estimate losses that are essentially already happening. Under the new ASU, you will need to look to the future to predict what events might cause losses. This means you will need to rely on economic forecasts and a more in-depth analysis of your institution's loss history to estimate future losses.
Although the ALLL estimation approach will be significantly different from the current one, your ALLL estimation methods won't have to change as much. As you begin planning for implementation, you need to know what methods you can keep and which ones have to be changed. This is important because the implementation planning process will involve a fair amount of time and effort, so you don't want to spend time unnecessarily.
Who will Benefit
- Financial Officers
- Loan review
- Internal auditors
- Audit committee members
- Asset and Liability management committee (ALCO) members
- Loan Administration
- Loan Production
- Loan Operations
- Anyone involved with the ALLL estimation and approval process
This is a 90 minutes Recorded Video Program wherein the speaker will join at the end for the Q&A session to answer your queries.