Pub. 2 2012-2013 Issue 3

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S November • December 2012 9 In developing an estimate of expected credit losses, the following information should be considered: • Changes in the credit risk of assets held by the entity • Changes in the historical loss experience for assets held at the reporting date • Changes in conditions since the previous reporting date • Changes in reasonable and supportable forecasts about the future The estimate of expected credit losses should reflect the time value of money. This model should generally apply to all financial assets reported at amortized cost and those measured through the Fair Value Through Other Comprehensive Income model. Interest income would be recognized separately from credit impairment expense and would generally be recognized based upon contractual cash flows. A principal similar to the current non-accrual principal also would be incorporated into interest income recognition. More to Come As currently presented, the CECL model would not re- sult in convergence with International Financial Reporting Standards, which may be viewed as a concern. Both boards want to issue exposure drafts during the fourth quarter of this year. Stay tuned as FASB provides more insight into this alternative impairment model and contact your accounting advisor for more information.  Related posts: 1. New Loan-Loss Model Proposed (http://www. financialreforminsights.com/2011/11/02/proposed-new-loan-loss- model/) 2. FASB Concedes on Fair Value Reporting for Certain Loans (http:// www.financialreforminsights.com/2011/01/28/fasb-concedes-on- fair-value-reporting-for-certain-loans/) 3. FASB Clarifies When a Restructuring Is a TDR (http://www. financialreforminsights.com/2011/04/15/fasb-clarifies-when-a- restructuring-is-a-tdr/) 4. Proposed Rule Requires Enhanced Credit Quality Disclosures (http://www.financialreforminsights.com/2011/12/16/proposed-rule- requires-enhanced-credit-quality-disclosures/) 5. FASB Proposes Disclosures for Liquidity & Interest Rate Risks (http://www.financialreforminsights.com/2012/07/09/fasb- proposes-disclosures-for-liquidity-and-interest-rate-risk/) Kristina Lowe is a member of the BKD National Financial Services Group, providing a variety of services to clients, including external audit, internal audit, loan review services, and assists clients in developing organizational risk assessments and internal audit plans. Contact the author at klowe@bkd.com.