Overview of CECL and IFRS 9 Implairment Modeling 0 Comments | By admin
In June 2016, FASB unveiled a guidelines for the banks to capture the credit loss by taking into account the expected credit losses over the expected lifetime of the products, and not use the 40 year old “Incurred Loss Model.
Background of the new Current Expected Credit Loss Model (“CECL”)
In 2011, the FASB and the International Accounting Standard Board (“IASB”) partnered to improve and standardize guidelines for impairment losses in both U.S. GAAP and International Financial Reporting Standards (“IFRS”). They proposed a “three-bucket” model for reporting impairments.
IFRS-9: How does IFRS recognize impairment of assets in a forward looking expected credit loss model
IFRS divides the loan and subsequent accounting in three buckets namely:
CECL: How does FASB recognize impairment of assets in a forward looking expected credit loss model?
What is the difference in the IASB IFRS 9 regulation and FASB CECL regulation?
|FASB CECL||COMMON ELEMENTS||IASB IFRS 9|
|Expected to be implemented by 2018|
|Initial recognition for a 12-month forward look for performing loans|
|This is expected to be implemented by 2020-2021||The Credit loss estimates (PD) is based on historical, current, and forward looking data||Unbiased, probability-weighted scenarios|
|“Life of loan” losses are to be calculated upon the initial recognition of asset”||Scalability of the PD/ LGD is based on size and complexity||“Life of loan” loss to be recognized upon significant deterioration in borrower rating”|
Calculating Expected Credit Loss: