CECL Methodology & (ACL) Review
CRF Advisors performs an independent review of the Allowance for Credit Losses (ACL) calculation and Current Expected Credit Loss (CECL) methodology implemented by Management. Our review procedures focused on the completeness of the ACL computation and supporting documentation, and conformity of the CECL methodology with interagency policy and accounting standards.
In June 2016, the Financial Accounting Standard Board (FASB) issued accounting standards update ("ASU") 2016-13 (Topic 326), Financial Instruments-Credit Losses. ASU 2016-13 (Topic 326) replaces the incurred loss impairment methodology in current GAAP with a CECL methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In March 2022, the FASB further amended Topic 326 with the issuance of ASU 2022–02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (ASU 2022–02).
Summary of Procedures:
Allowance for Credit Losses (ACL) methodology:
- Review ACL calculation and CECL methodology to ensure compliance with Interagency Policy Statement on the Allowance for Credit Losses and Financial Accounting Standard Board (FASB) issued accounting standards update ("ASU") 2016-13, Financial Instruments-Credit Losses. ASU 2016-13 (Topic 326).
- Test the accuracy of the ACL computation:
- Test the CECL Reconciliation and verify balances of loan pools to GL.
- Review Pool Segmentation & Criteria for each Pool.
- Review the life determination of loan pools.
- Perform recalculation of sample a 5 PD x LDG or DCF used in the Loss Model.
- Review qualitative assumptions and documentation.