As 2017 gets underway, and we understand more about what’s on the horizon for the new administration’s regulatory and tax reform, there’s a sense that the coming years will bring unprecedented changes for financial institutions. In this last post in our series about CECL adoption, we will revisit the timeline and steps. More than ever, it is critical that you are preparing now for ensuring a successful adoption in the midst of an ever-changing landscape.
Reviewing Effective Dates for CECL
If you’ve been following this blog series or participated in our webinar, you’re well aware that FASB set required CECL implementation dates several years out. Whether or not your bank intends to adopt the standards early, preparation should be underway now.
- Early adoption is permitted for all entities in fiscal years beginning after December 15, 2018
- PBE’s (assets exceeding $500 million and subject to FIDICIA) that are SEC Registrants: CECL is effective for fiscal years beginning after December 15, 2019
- PBE’s that are not SEC Registrants: CECL is effective for fiscal years beginning after December 15, 2020
- For all other entities, the new standard is effective for fiscal years beginning after December 15, 2021
Implementation is complex, and success is contingent on the appropriate loan portfolio data, models, task force, and software resources. Every step in the process should be allowed to work long enough to be tested and for troubleshooting to occur, to confirm that each component is functioning as intended.
- Conduct a thorough loan portfolio analysis to assess gaps and credit risk
- Identify the Credit Quality Indicators (CQIs) impacting your loan portfolio
- Select the CECL model or models that most align with your identified loan pools
- Put human and technological capabilities in place and identify needed external resources
- Perform scenario simulations to test selected CECL models for reasonableness
- Engage the software solution that works best with your loan portfolio, selected models, data management, and human resources
The last step is the most important. As you engage this cadence of implementation, iteration, and finalization toward CECL adoption, document all appropriate information. Auditors and regulators will expect that you have thorough, standardized information for each new policy, procedure, and internal control.
We are well underway toward the “biggest change to bank accounting ever.” An evolution that size demands a proactive, step-by-step process, careful resource allocation, and thorough documentation. We’re confident that those banks that take this approach will be positioned best to turn a compliance burden into an opportunity.
Our team is available and equipped to help you at each step in your journey toward compliance. You can get in touch with a HORNE Banking advisor here. And check out our CECL information resources, including a series of blogs that takes a detailed look at each step, a free webinar, and a visual eight step timeline.
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