The Financial Accounting Standards Board’s Current Expected Credit Loss standard replaces the incurred loss model with a lifetime expected credit loss estimate. This change will have a wide-ranging impact on credit unions’ allowance processes, requiring new data elements and new disclosures and analytics in support of a forward-looking credit loss estimate.

An expected credit loss model represents a fundamental change to the definition of the allowance, but the transition to CECL will entail more than just incorporating reasonable and supportable forecasts in the reserve. More importantly, allowance-estimation decisions should not be made in isolation, because estimation approaches will have consequences for reporting, systems and data, which will all need to change to support the methodology elections.

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