RECENT POSTS
Wednesday, February 12, 2020
Another Calcbench Use Case: Benchmarking DPO Changes

Tuesday, February 11, 2020
Updated Calcbench Excel Add-In

Monday, February 10, 2020
Hot Take on Cooling PPE Outlays

Monday, February 3, 2020
A Brief History of Juul Impairment Charges

Thursday, January 30, 2020
Research Note: Impairment of Leased Assets

Tuesday, January 28, 2020
Tracking Coronavirus Risk, Disclosures

Thursday, January 23, 2020
How to Find a Material Weakness

Sunday, January 19, 2020
Calcbench Tip: Email Alerts

Sunday, January 19, 2020
Calcbench Tip: Text Disclosures

Tuesday, January 14, 2020
Devising an Impairment Sensitivity Test

Thursday, January 9, 2020
Acuity Impairment on Leased Asset

Thursday, January 9, 2020
Calcbench Excel Add-in for Office 365 (The Excel Add-in on Mac)

Tuesday, January 7, 2020
Restructuring After Restructuring at Jabil

Friday, January 3, 2020
New Year, New Risks for Uber & Others

Friday, December 27, 2019
Looking Again at Legalized Weed

Sunday, December 22, 2019
An Update on Trucking Industry Slowness

Wednesday, December 18, 2019
Coming Up in 2020: CECL Disclosures

Wednesday, December 11, 2019
Finding and Assessing ‘Contribution Margin’

Monday, December 9, 2019
Cycling Through Peloton’s Financials

Monday, November 25, 2019
Calcbench and Academic Research

Archive  |  Search:
Coming Up in 2020: CECL Disclosures
Wednesday, December 18, 2019

Large corporations have had to address one new accounting standard after another in recent years, and 2020 will be no exception.

Ladies and gentlemen, welcome to the new standard for Current Expected Credit Losses — otherwise known as CECL.

CECL will be 2020’s big honking new accounting standard that companies struggle to implement. It goes into effect on Jan. 1, and requires firms to implement a new methodology to calculate expected credit losses over the lifetime of financial instruments said firms carry on their books.

Those calculations will be a blend of historical experience plus forecasts based on reasonable evidence and analysis of current conditions. Broadly speaking, CECL is likely to make a company’s estimated credit losses more precise in any single quarter, but also more volatile across many quarters — kinda like what happened with the new standard for revenue recognition introduced in 2017.

Suffice to say that CECL is complicated, so Calcbench will be following disclosures and analyzing data all through the coming year. Meanwhile, we’ve already done some preliminary work and have a few pointers for you now.

First, you can always visit our Interactive Disclosures Page and just search for “CECL.” We did, and found hundreds of results in the S&P 500 for third-quarter 2019 filings alone.

For example, American Express ($AXP) said that based on preliminary testing, CECL could lead to a significant increase in reserves for credit losses:

The results of those preliminary simulations continue to indicate that our total reserves for credit losses related to our Card Member loans and receivables portfolios could have a net increase between 25 percent and 40 percent, with an increase in reserves of between 55 percent and 70 percent related to our Card Member loans portfolio and a decrease in reserves related to our Card Member receivables portfolio, all of which is based on the comparison of preliminary CECL estimates as compared to the incurred loss model applied today.
General Motors ($GM), meanwhile, had this to say:
Upon adoption, we expect to record an adjustment that will increase our allowance for credit losses between $700 million and $900 million, with an after-tax reduction to Retained earnings between $500 million and $700 million. The amount of the adjustment is heavily dependent on the volume, credit mix and seasoning of our loan portfolio.

And PNC Financial ($PNC) devoted almost an entire page to discussing CECL. The key part was this:

The adoption of the CECL standard could result in an overall [allowable credit losses] increase of approximately 20 percent, as compared to our current aggregate reserve levels. The overall change is primarily due to the difference between current loss reserve periods versus the estimated remaining contractual lives, as required by the CECL standard. We believe that given current conditions, our consumer loss reserves will increase significantly, while our commercial loan reserves will decrease slightly. Additionally, the CECL ACL could produce higher volatility in the quarterly provision for credit losses than our current reserve process.

CECL will foremost affect companies that carry a lot of financial instruments or extend credit to customers. So expect banks, insurers, and other financial firms to have lots to say about CECL; and also businesses with significant customer financing operations — like General Motors, which is why we included the company above.

Other Ways to Research

Allowances for loan losses are listed on the balance sheet, so you can always research a firm using our Company-in-Detail page to find its estimated loan losses. Or use our Multi-Company page to search for loan-loss allowances and then use our world-famous trace function to see the underlying disclosures for more detail.

You can also search for ASU 2016-13, which is the formal name for CECL. Typically companies will mention new accounting standards in their Significant Accounting Policies disclosures, but not always. When we skimmed the S&P 500, we found CECL discussion in the Management Discussion & Analysis, Basis of Presentation, and even in a few earnings releases.

So you’re best served by using our text search to look for the specific standard, regardless of where any specific company might place its disclosures.

That’s all for now. As we said, CECL will be the big financial reporting issue for 2020, so we’ll have lots more to say on the subject throughout next year.


FREE Calcbench Premium
Two Week Trial

Research Financial & Accounting Data Like Never Before. More features and try our Excel add-in. Sign up now to try the Premium Suite.