Current U.S. Generally Accepted Accounting Principles (GAAP) account for credit impairment using an ‘‘incurred loss’’ model. Many have argued that this model recognizes too few losses too late and suggest a more forward-looking ‘‘expected loss’’ approach. To address this, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) devised a common solution, which FASB has now further amended.
In this article, Protiviti provides a summary of the FASB’s proposed CECL methodology and outlines some of the challenges and opportunities the amendment raises.