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Please refer to our CECL page and our Leases page for current implementation deadlines.

The Financial Accounting Standards Board (FASB) passed the final current expected credit loss (CECL) standard.

In recent months, community bank management teams have spent countless hours discussing what they are doing about CECL. Commonly, these conversations relate to data management or vendor/model selection for software that will give the most accurate estimated credit loss. The question to be answered moving forward is no longer, "What are you going to do about CECL," but "Are you ready for CECL adoption?"

That question can be overwhelming, and many financial institutions still are preparing for adoption of the standard. The documentation requirements are expected to be robust, and there are a number of assumptions to be made and internal controls to be considered. The best way to know if you are on track to meet your implementation date is to have a detailed project plan that contains all the necessary milestones to reach adoption.

As you consider your project plan, it may be helpful to divide the plan into different work streams to delegate tasks appropriately among members of your implementation committee. Some work streams that have been put into practice include model development, model documentation, model validation, accounting policy and internal control and governance.

Where are you in the adoption process, and what else should you be doing about CECL? The following graphic illustrates some common items that may be part of your detailed project plan. While the phases are presented in linear form, it is likely that many of them will run concurrently as you work to meet your implementation date.

CECL 5 Phase Model - Phase 1 Model Development (Data, Pooling, Historical Loss Estimations, Qualitative Factors, Forecast Selections, Data Validation, Data Sources) / Phase 2 Model Documentation (CECL Committee Meeting Minutes, Methodologies for the Different Pools, Key Decision, Qualitative Assumptions - Both Factors and Forecast Assumptions) / Phase 3 Model Validation (Documenting Procedures of Data Validation for Historical Data, Consulting/Documenting Treatment of Acquired Loans, Implementing/Documenting Controls over the Flow of Data, Documenting Calculations, Consulting/Documenting Q Factors and Forecast Assumptions, Hire a Validation Firm) / Phase 4 Accounting Policy Workflow Streams (Assets in Scope, Defining the Pools Used in Model, Defining Loans that do not share Similar Risk, Defining Terms, Documenting Accrued Interest Election, Documenting Accounting for Acquired Loans, Documenting the Use and Appropriateness of External Data When Own Data is Insufficient, Documentation and Supporting New Qualitative Factors, Documenting and Supporting Forecast Factors, Documenting Accounting Policy for Off-Balance Sheet Items) / Phase 5 Internal Control and Governance (Documenting and Implementing Controls over CECL, Performing Internal Audit Procedures over the New CECL Controls, Implementing Controls Post-Adoptions - Key Inputs, Calculations, Changes to Subjective Adjustment)

Is your financial institution ready for adoption? Are you comfortable with the progress to date? Each institution is unique, and DHG can assist you as you prepare for CECL implementation.

About DHG Financial Services

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