Public companies and banks that do not file as smaller reporting companies have long wrestled with current expected credit loss (CECL) accounting, but now privately held and not-for-profit firms are subject to the rules, according to the FASB.
The CECL standard requires certain organizations to measure expected credit losses based on several factors, such as historical information, current conditions, and reasonable and supportable forecasts.
As organizations proceed to implement the CECL standard, it is becoming clear that the rules have consequences for several industries beyond the financial sector.
The FASB issued the CECL standard in 2016 as the board sought to foster timelier reporting of financial losses in the wake of concerns about delays in recognizing deteriorated asset values that rose out of the 2008 financial crisis.
The rules are complex but private firms and not-for-profits can take several steps early in the adoption process to make the process less convoluted.