In this Article
What is CECL?
Current Expected Credit Loss (CECL) was introduced by the Financial Accounting Standards Board (FASB) in 2016, for implementation by most publicly traded companies by 2020, and shifts credit losses from being measured on an "incurred loss" accounting model for to an "expected loss" accounting model for financial instituions.
As part of this shift, CECL allows entities to adopt the following methods to determine the allowance for credit losses, such as discounted cash flow methods, loss-rate methods, roll-rate methods, probability of default methods, or methods that utilize an aging schedule as described in paragraph 326-20-30-3.
For more information on these changes, see FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
What method does PrecisionLender utilize?
PrecisionLender typically recommends probability of default along with Loss given default methods for credit risk assumptions. However, PrecisionLender is not a CECL model and is not meant as a substitute for any internal accounting model to measure CECL.
As part of implementation, we'll complete a risk rating migration analysis to help determine the probability of default at different risk levels. For more information, see How to Determine the Capital Calculation.
Those risk rating assumptions will be added to your product assumptions and applied to each opportunity priced in PrecisionLender. For more information, see Setting Up Risk Ratings.
For some additional break down of the math, see How Does the Math Work.
If you have any questions, please feel free to reach out to us at firstname.lastname@example.org.