CECL: a guide for not-for-profits to manage credit losses

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Demystifying CECL: A guide for NFPs to managing credit losses

Oct. 26, 2023 · Authored by Ivan Cilik, Sean Statz, Michael W. Wascura

Notes receivable with carried amortized cost? Loans made to officers or employees? Financing leases where you are the lessor? If you have trade and financing receivables (think instruments with accrued interest receivable or a note receivable), or any of the other triggers mentioned above, then you should be prepared for the new standard for reporting current expected credit losses and applying it now.

Considered one of the most significant accounting changes in decades, the new current expected credit loss (CECL) standard affects the way organizations evaluate impairment of financial assets such as loans, receivables and investments in debt securities. All organizations with balances due to them, or that have an off-balance-sheet credit exposure (such as a guarantee) will feel the effects. Depending on the size and nature of the receivables and other financial instruments on the balance sheet, organizations can expect major impacts through both the changes in loss reserve methodology itself, as well as the associated technological, operational and reporting advances required for proper implementation to record allowance for certain trade and financing receivables under Accounting Standard Update (ASU) No. 2016-13: Financial Instruments – Credit Losses.

We’ve written extensively on the subject, but here are the top five things that not-for-profit organizations should know.

1 – Timeline

Not-for-profit (NFP) organizations will be required to adopt CECL for fiscal years beginning after Dec. 15, 2022. This timing reflects an extension in the implement date made by the Financial Accounting Standards Board (FASB) to allow organizations addition time to prepare for the transition following the COVID-19 pandemic. So, what this really means is that you need to be working on your CECL implementation now.