Pub. 6 2016-2017 Issue 6

16 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 CECL: Your Step-by-Step Guide to Compliance by 2020-21 V ery soon, CECL will fundamentally change how the f inancial industry ac count s for loan los s re ser ve s . Currently, institutions can’t record expect- ed losses until deemed “probable.” Because of this limitation, they were inadequately re- served before the 2008 financial crisis. To avoid a disastrous repeat, the Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss (CECL) approach to the Allowance for Loan and Lease Losses (ALLL) goes into effect between 2020 and 2021. Ex - perts advise immediate action toward mini- mizing CECL’s impact on institutions’ capital and human resources. The following guide takes your institution through implementation, one step at a time. Step 1: Initiate Education and Planning According to the American Bankers Asso- ciation (ABA), regulators consider CECL “the biggest change ever to bank accounting.” You can help control the pain, if you haven’t already done so, by educating staff and planning now: 1. Assign a team leader and assemble a team Identify a strong candidate with experience in such areas as credit risk or accounting. Familiarity with project management also is ideal. The CECL leader should build a teamrep - resenting key affected areas, including senior management, loans, credit underwriting, risk management, accounting and internal audit. 2. Educate the team and board Review CECL and explain its possible im - plications to your board and key stakeholders. Start by reviewing these interagency docu- ments about CECL: Joint Agencies Statement and Frequently Asked Questions. 3. Create a project plan Your detailed project plan should manage systemandpolicy changes, provide training and communication, and account for contingencies. FEATURE ARTICLE KEITH MONSON CHIEF RISK OFFICER CSI To avoid a disastrous repeat, the Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss (CECL) approach to the Allowance for Loan and Lease Losses (ALLL) goes into effect between 2020 and 2021.