When asked if Financial Institutions would take the option to delay CECL in our peer response survey, over 50% of Larger SEC Filers polled said they will push their “go live” date.
While many of these banks have been preparing for several years, the opportunity for a few more quarters of parallel testing and measurement is a great relief. Additionally, a temporary pause of CECL could free up capital and help ensure that banks can continue to support their customers and, most importantly, continue to lend.
For others that are choosing to proceed as scheduled, the argument may be that losses will show in either model as it is reasonable to assume that losses as of 3/31/2020 have already been incurred and that an extension of 1 (one) year simply isn’t worth the additional management and resource costs.
In either scenario, it is evident that the Larger SEC Filers will not slow their CECL efforts, but increase them to confirm that the process and output are tested, accurate, and acceptable.
Small Reporting and Private Companies have already received a delay (refer back to FASB announcement of July 2019) for CECL adoption, and their new timeline is Q1 of 2023. This Classification group has the most significant number of entities by far, and they are all watching what the Larger SEC Filers are doing so they, too, can keep up with the flow of traffic as it relates to the CECL transition.
If you are reading this and you are a Small Reporting or Private Company, we recommend (based on our SEC client feedback) accelerating your CECL Readiness. By moving forward now, your institution will have the benefit of running CECL against your primary Incurred Loss Model and assess what those impacts are in the economic downturn due to the COVID-19 pandemic. Furthermore, this strategy presents an opportunity to escape Excel spreadsheets and automate the Allowance process, which will make for a more swift implementation of CECL.