Risk Insights: CECL Implementation

FASB’s new Current Expected Credit Loss standard (Topic 326), more widely known as CECL, makes sweeping changes in accounting for credit losses of financial assets. It moves away from the traditional model of “incurred losses” and toward an “expected credit loss” model, which requires a periodic evaluation of forecasted impacts.

The new standard applies not just to businesses that provide financing or invest in debt securities, but to all industries with financial assets, including oil and gas companies. With oil demand dropping significantly from the coronavirus pandemic coupled with excess market supply from Russian and Saudi Arabia, oil producers are facing significant pressure. A number of producers have filed for bankruptcy protection and more bankruptcies are likely in the future. These market conditions have made it more important than ever for companies to evaluate the impact on expected credit losses.

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