FASB ASC 326 — LLMpedia

FASB ASC 326
Name	FASB ASC 326
Other names	Current Expected Credit Losses (CECL)
Issued by	Financial Accounting Standards Board
Effective date	2019–2023 (phased)
Topic	credit losses

Contents

FASB ASC 326.

Overview

FASB ASC 326 was issued by the Financial Accounting Standards Board and amended standards that interact with the Accounting Standards Codification to require an expected credit loss approach, affecting entities such as the Federal Reserve System, Securities and Exchange Commission, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and multinational institutions like JPMorgan Chase, Citigroup, Bank of America, Wells Fargo. The guidance replaced prior impairment models used after events like the 2008 financial crisis and aligns with reforms debated in contexts including the Dodd–Frank Wall Street Reform and Consumer Protection Act, the International Accounting Standards Board deliberations, and commentary from auditors such as PricewaterhouseCoopers, Deloitte, Ernst & Young, and KPMG. Adoption has influenced financial reporting in jurisdictions involving entities like New York Stock Exchange, London Stock Exchange, European Central Bank, and regulators such as the Federal Housing Finance Agency.

The standard defines terms and scope applicable to instruments originated or purchased by firms such as Goldman Sachs, Morgan Stanley, Barclays, UBS, and sectors represented by American Bankers Association and Independent Community Bankers of America. Key definitions reference financial assets measured at amortized cost, trade receivables for companies like Walmart, Amazon (company), Apple Inc., and held-to-maturity securities relevant to issuers including General Electric, Ford Motor Company, and Toyota Motor Corporation. The scope excludes assets under models used by Fannie Mae, Freddie Mac, MetLife, and insurance liabilities overseen by entities like the National Association of Insurance Commissioners.

The CECL model requires entities such as PNC Financial Services, SunTrust Banks, Royal Bank of Scotland, and Credit Suisse to estimate lifetime expected credit losses using historical experience, current conditions, and reasonable and supportable forecasts—techniques debated in forums including International Monetary Fund, World Bank, Bank for International Settlements, and academic research from institutions like Harvard University, University of Chicago, Stanford University, and Massachusetts Institute of Technology. Modeling approaches draw on methods used by researchers at National Bureau of Economic Research, central banks such as the Bank of England, and consulting firms including McKinsey & Company, Boston Consulting Group, and Oliver Wyman.

Implementation was phased with effective dates differing by entity type, affecting large public business entities including Alphabet Inc., Microsoft, Tesla, Inc. earlier than community banks represented by Independent Community Bankers of America and smaller lenders influenced by guidance from the Consumer Financial Protection Bureau. Standard-setters and audit firms such as Financial Accounting Standards Board, American Institute of Certified Public Accountants, Public Company Accounting Oversight Board, International Accounting Standards Board, and regulators like the Federal Reserve System and Securities and Exchange Commission provided transition resources and outreach.

Measurement requires recognition of lifetime expected losses on amortized cost financial assets for corporations such as Procter & Gamble, Coca-Cola Company, Pfizer, and Johnson & Johnson, with allowances determined using scenarios informed by analysts at Moody's Corporation, Standard & Poor's, Fitch Ratings, and credit research from groups like S&P Global. Hedging and fair value interactions touch standards and institutions including International Financial Reporting Standards Foundation, European Financial Reporting Advisory Group, and market infrastructures such as Chicago Mercantile Exchange.

The standard mandates disclosures about credit risk, methodology, and assumptions for stakeholders including investors at BlackRock, Vanguard Group, State Street Corporation, and regulators like the Securities and Exchange Commission, with audit commentary from KPMG, Ernst & Young, PricewaterhouseCoopers, and Deloitte. Filings under frameworks used by companies listed on exchanges such as the New York Stock Exchange and NASDAQ must include reconciliations, qualitative discussions, and sensitivity analyses similar to reporting practices from issuers like Intel Corporation, Cisco Systems, and Oracle Corporation.

Adoption affected capital planning at banks such as Bank of America, Citigroup, HSBC, Deutsche Bank, and commentators from think tanks including the Brookings Institution, Heritage Foundation, Cato Institute, and academics at Yale University and Columbia University raised concerns about procyclicality, implementation burden, model risk, and comparability. Critics pointed to operational costs highlighted by industry groups such as the American Bankers Association and case studies involving firms like Countrywide Financial and events recalling the 2008 financial crisis, while supporters cite improved forward-looking transparency advocated by regulators including the Federal Deposit Insurance Corporation and international bodies like the Financial Stability Board.

Category:Accounting standards