02/09/2024

Not-for-profits and the Current Expected Credit Loss (CECL) Model

This new standard is effective after Dec. 15, 2022

The current expected credit loss (CECL) model under Accounting Standards Update (ASU) 2016-13 was established to simplify US GAAP and provide for more timely recognition of credit losses. Events such as the housing crisis of 2008 and COVID-19 have proven the need for this new model, as the previous model did not allow for a recognition of expected losses unless seen as, "probable."

The CECL model now requires the immediate recognition of estimated expected credit losses over the life of a financial instrument. The estimate of expected credit losses considers not only historical information, but also current and future economic conditions and events.

This new standard is effective for fiscal years beginning after Dec. 15, 2022. The CECL model should be implemented in a retrospective approach.

Please select this link to read the complete article from OSAP Mission Partner Clark Schaefer Hackett.