4.1 Introduction
For assets measured at amortized cost, the CECL model eliminates the
existing recognition thresholds in U.S. GAAP. Under the guidance, the estimate of
expected credit losses will be (1) recognized immediately upon either origination or
acquisition and (2) adjusted in each subsequent reporting period. Since the primary
guidance in ASU
2016-13 is measurement-related, measurement is the most
significant aspect of the CECL model. This chapter addresses the following
topics:
- Contractual life (Section 4.2).
- The information an entity needs when estimating credit losses (Section 4.3).
- Measurement methods (Section 4.4).
- Write-offs and recoveries (Section 4.5).
- Credit enhancement features (Section 4.6).
- TDRs (Section 4.7).
- Considerations related to postacquisition accounting for acquired loans (Section 4.8).
- Subsequent events (Section 4.9).
- Transfers to other measurement categories (Section 4.10).
Changing Lanes
FASB ASU on Troubled Debt Restructurings and Vintage
Disclosures
In March 2022, the FASB issued ASU 2022-02,
which completely superseded the accounting guidance on TDRs for creditors in
ASC 310-40 and requires entities to evaluate all receivable modifications
under ASC 310-20-35-9 through 35-11 to determine whether a modification made
to a borrower results in a new loan or a continuation of the existing loan.
The ASU also amended other Codification subtopics to remove references to
TDRs for creditors.
In addition to the elimination of TDR guidance, an entity
that has adopted ASU 2022-02 no longer considers renewals, modifications,
and extensions that result from reasonably expected TDRs in calculating the
allowance for credit losses in accordance with ASC 326-20. Further, an
entity that employs a DCF method to calculate the allowance for credit
losses will be required to use a postmodification-derived effective interest
rate (EIR) as part of its calculation in accordance with ASC
326-20-30-4.
For entities that had already adopted ASU 2016-13, the
amendments in ASU 2022-02 are effective for fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years. For
entities that had not yet adopted ASU 2016-13, the amendments in ASU 2022-02
are effective upon adoption of ASU 2016-13. Early adoption is permitted in
certain situations, as discussed in Section 10.2.1.8.
We have updated this section of the Roadmap to reflect the
amendments made by ASU 2022-02. However, because some entities that already
have adopted ASU 2016-13 may not have adopted ASU 2022-02 as of the issuance
of the Roadmap, we have included the amendments made by ASU 2022-02 as
pending content.