ASU 2016-13 Current Expected Credit Loss Effective for Private Companies in 2023


Carissa DeLuca, CPA, CFE

Audit Manager


ASU 2016-13 Financial Instruments-Credit Losses, which covers the Current Expected Credit Loss model (also known as CECL), is effective for private companies for years beginning after 12/15/2022. The accounting standard is not just applicable to mortgage banks, but can also impact trade receivables, loan receivables and reinsurance receivables and more for companies in all industries.

Previously, US GAAP required an “incurred loss” methodology for credit losses and loss recognition once probable. Under the old method, historic loss percentages were a common and appropriate method of measurement of credit losses. CECL will require measurement of “expected losses” based on past, present & future. The new guidance requires a forward-looking methodology that incorporates lifetime expected credit losses. In other words, estimated credit losses should be booked concurrently with recognition of the asset (accounts receivable, for example) and the credit loss estimate must be updated during each future reporting period.

Although historic data can still be an input in management’s estimate, the estimate will also need to be combined with current conditions and reasonable supportable forecasts of future losses. In addition, customer accounts should be segregated into pools with similar risk characteristics (regional, contract type, payor type, etc.). The good news is many companies have found that their estimate of credit losses applied to trade receivables using the new method has not resulted in material adjustments from their previous estimates.  This new methodology should be documented within your accounting policies and procedures.

The new standard may also have an impact on disclosures. Companies will need to include a description of credit quality indicators/key components of Management’s estimation methodology for each asset type. This should include description of consideration of current and future conditions.  In addition, during the year of implementation a description of changes to methodology from prior period and the quantitative effect of those changes, will be required, when applicable.

If you have questions about implementing CECL or how it may impact your GAAP financial statements, please contact us here.


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