The Financial Accounting Standards Board's Current ExpectedCredit Loss standard replaces the incurred loss model with alifetime expected credit loss estimate. This change will have awide-ranging impact on credit unions' allowanceprocesses, requiring new data elements and new disclosures andanalytics in support of a forward-looking credit lossestimate.

An expected credit loss model represents a fundamental change tothe definition of the allowance, but the transition to CECL willentail more than just incorporating reasonable and supportableforecasts in the reserve. More importantly, allowance-estimationdecisions should not be made in isolation, because estimationapproaches will have consequences for reporting, systems and data,which will all need to change to support the methodologyelections.

With respect to the transition to CECL, the distinction betweencompliance and success is an important one.Achieving CECL compliance means meeting the requirements of thestandard and executing the reserving process on time. Asuccessful CECL implementation, on the other hand, is about morethan just checking a box. Success is about streamlining thereserving process, increasing scalability, and gaining efficienciesin a secure and controlled environment.