CONTINUING EDUCATION FOR TAX & FINANCIAL PROFESSIONALS

If You Have Trade Receivables Then You Will Apply CECL: Current Expected Credit Losses (CECL)

Icon_Webcast
Webcast
Icon_Level
Basic
Credits
CPE Credits
1 Credits: Taxes

Course Description

As the country went through the financial crisis in the mid 2000s, related to mortgage portfolios, the accounting guidance for reporting losses was challenged.  GAAP was using an “incurred loss” for recognizing credit losses when a loss was probable. Users were adjusting decision models for possible “expected losses”.  Users criticized the delay in reporting losses and also what appeared to be diversity in the application of “probable”.  As a result, FASB was asked to review the guidance for recording credit losses.  ASU 2016-13 Measurement of Credit Losses on Financial Instruments was issued after an eight-year period of development. Although the standard was developed in response to loans and debt securities, FASB issued the standard to cover most financial assets including trade receivables.  The standard calls for recording expected credit losses that reflects losses that are expected over the contractual life of the asset. In almost all cases credit losses are recognized upon initial recognition of the asset. Information to consider will include historical loss information, adjustments to historical information for changes in asset specific risks, current economic conditions, and reasonable and supportable forecasts about future conditions (with reversion to historical loss information for future periods beyond those that can be reasonably forecast). Pooling is required when assets share similar risk characteristics.  The expected current credit loss and the allowance for credit losses may be determined using various methods.  No particular method is required.  Example 5 from the standard which calculates the expected credit loss for trade receivables is presented.  This example uses a provision matrix (an aging of receivables) to calculate the expected credit loss.   The nature of Purchased Credit Deteriorated (PCD) financial assets are discussed along with an example of how to record them.  CECL disclosures are explained and sources of information on CECL accounting in general and articles discussing CECL for trade receivables are provided.   The course ends with the actions taken by Congress during 2019 and 2020 to challenge FASB’s accounting for credit losses.

Learning Objectives

Upon successful completion of this course, the user should be able to:

  • Understand the controversy in accounting for credit losses that led to a new standard
  • Be aware of the effective date of the standard for nonpublic entities
  • Discuss the differences between the existing GAAP and the new CECL GAAP for:
    • when to recognize the CECL loss
    • the period to consider for estimating the CECL loss
    • what information needs to be considered for the estimation
    • the pooling guidance
  • Identify the effect of the CECL process on the balance sheet and income statement
  • Explain how to handle recoveries and write-offs related to CECL
  • Identify the need for pools of asset with similar risks and possible variables that might be used to construct pools
  • Cite characteristics of the information such as qualitative and quantitative that is used in estimating CECL
  • Explain the contractual term to be used and the approach used when reasonable and supportable forecast cannot be made across the entire contractual life
  • List the steps taken to estimate CECL
  • Complete a simple estimation of CECL for trade receivables using an aging (Matrix provision)
  • Define a Purchased Credit Deteriorated (PCD) financial asset and how to account for a PCD
  • Discuss disclosure requirements of CECL
  • Understand the action of Congress to delay the implementation of CECL

Course Specifics

Course ID
WC18206962
Advanced Preparation

None

Compliance information

NASBA Provider Number: 103220
IRS Provider Number: 0MYXB
IRS Course Number: 0MYXB-T-01569-20-O
IRS Federal Tax Law Credits: 1
CTEC Provider Number: 2071
CTEC Course Number: 2071-CE-1466
CTEC Federal Tax Law Credits: 1

Course Instructor

Rod Redding Headshot
Rod Redding, PhD, CPA

Dr. Rod Redding received his PhD from Penn State University after working with Price Waterhouse and IBM. Presently, he presents seminars and webcasts and prepares self-study courses for Western CPE. He has over 30 years’ experience as a professor at universities such as the University of North Carolina, the University of Utah, Georgetown University, and Gettysburg College. He also has taught internationally at Kenyatta University in Kenya and the American University of Sharjah in the United Arab Emirates. Three different universities have given Dr. Redding awards for excellence in teaching. Dr. Redding holds a CPA certificate but has elected inactive …

Rod Redding, PhD, CPA Read More »

If You Have Trade Receivables Then You Will Apply CECL: Current Expected Credit Losses (CECL)

Expert Instructors
CPE CREDITS
1 Credits: Taxes

$49.00

Icon_Webcast
Webcast
Icon_Level
Basic
Credits
CPE Credits
1 Credits: Taxes

Course Description

As the country went through the financial crisis in the mid 2000s, related to mortgage portfolios, the accounting guidance for reporting losses was challenged.  GAAP was using an “incurred loss” for recognizing credit losses when a loss was probable. Users were adjusting decision models for possible “expected losses”.  Users criticized the delay in reporting losses and also what appeared to be diversity in the application of “probable”.  As a result, FASB was asked to review the guidance for recording credit losses.  ASU 2016-13 Measurement of Credit Losses on Financial Instruments was issued after an eight-year period of development. Although the standard was developed in response to loans and debt securities, FASB issued the standard to cover most financial assets including trade receivables.  The standard calls for recording expected credit losses that reflects losses that are expected over the contractual life of the asset. In almost all cases credit losses are recognized upon initial recognition of the asset. Information to consider will include historical loss information, adjustments to historical information for changes in asset specific risks, current economic conditions, and reasonable and supportable forecasts about future conditions (with reversion to historical loss information for future periods beyond those that can be reasonably forecast). Pooling is required when assets share similar risk characteristics.  The expected current credit loss and the allowance for credit losses may be determined using various methods.  No particular method is required.  Example 5 from the standard which calculates the expected credit loss for trade receivables is presented.  This example uses a provision matrix (an aging of receivables) to calculate the expected credit loss.   The nature of Purchased Credit Deteriorated (PCD) financial assets are discussed along with an example of how to record them.  CECL disclosures are explained and sources of information on CECL accounting in general and articles discussing CECL for trade receivables are provided.   The course ends with the actions taken by Congress during 2019 and 2020 to challenge FASB’s accounting for credit losses.

Learning Objectives

Upon successful completion of this course, the user should be able to:

  • Understand the controversy in accounting for credit losses that led to a new standard
  • Be aware of the effective date of the standard for nonpublic entities
  • Discuss the differences between the existing GAAP and the new CECL GAAP for:
    • when to recognize the CECL loss
    • the period to consider for estimating the CECL loss
    • what information needs to be considered for the estimation
    • the pooling guidance
  • Identify the effect of the CECL process on the balance sheet and income statement
  • Explain how to handle recoveries and write-offs related to CECL
  • Identify the need for pools of asset with similar risks and possible variables that might be used to construct pools
  • Cite characteristics of the information such as qualitative and quantitative that is used in estimating CECL
  • Explain the contractual term to be used and the approach used when reasonable and supportable forecast cannot be made across the entire contractual life
  • List the steps taken to estimate CECL
  • Complete a simple estimation of CECL for trade receivables using an aging (Matrix provision)
  • Define a Purchased Credit Deteriorated (PCD) financial asset and how to account for a PCD
  • Discuss disclosure requirements of CECL
  • Understand the action of Congress to delay the implementation of CECL

Course Specifics

Course ID
WC18206962
Advanced Preparation

None

Compliance information

NASBA Provider Number: 103220
IRS Provider Number: 0MYXB
IRS Course Number: 0MYXB-T-01569-20-O
IRS Federal Tax Law Credits: 1
CTEC Provider Number: 2071
CTEC Course Number: 2071-CE-1466
CTEC Federal Tax Law Credits: 1

Course Instructor

Rod Redding Headshot
Rod Redding, PhD, CPA

Dr. Rod Redding received his PhD from Penn State University after working with Price Waterhouse and IBM. Presently, he presents seminars and webcasts and prepares self-study courses for Western CPE. He has over 30 years’ experience as a professor at universities such as the University of North Carolina, the University of Utah, Georgetown University, and Gettysburg College. He also has taught internationally at Kenyatta University in Kenya and the American University of Sharjah in the United Arab Emirates. Three different universities have given Dr. Redding awards for excellence in teaching. Dr. Redding holds a CPA certificate but has elected inactive …

Rod Redding, PhD, CPA Read More »

If You Have Trade Receivables Then You Will Apply CECL: Current Expected Credit Losses (CECL)

Expert Instructors
CPE CREDITS
1 Credits: Taxes

$49.00