The Impact of Assumptions on the CECL Estimate

Masha Muzyka, CPA

As implementation of FASB's new current expected credit loss (CECL) model begins across institutions of all sizes, one of the questions executive management should be asking their CECL working groups is, “What is the impact to our bottom line?” Back-of-the-envelope calculations reveal that assumptions and methodology choices can materially affect the lifetime loss estimate. Management should understand now whether the recognition of lifetime losses at origination of certain product types or to certain borrowers would create a competitive disadvantage, and if so, should take steps prior to the effective date to mitigate the impact of the new model.