DOES CURRENT EXPECTED CREDIT LOSS ACCOUNTING REFLECT A BEST ESTIMATE? TIME SERIES EVIDENCE FROM CREDIT LOSS REPORTING

Arianna Spina Pinello and Ernest Lee Puschaver

Accounting & Taxation, 2023, vol. 15, issue 1, 83-103

Abstract: The current expected credit losses (CECL) accounting model became effective January 1, 2020. This paper examines the relationship between actual loan losses, allowances for credit losses (ACLs), and provisions for credit losses (PCLs) reported by three of the largest U.S. banks for the three years pre-CECL-adoption and the three years post-CECL-adoption. Data was obtained from the banks’ filings with the Securities & Exchange Commission on Forms 10-K and 10-Q, including disclosure commentaries by management, as well as earnings releases and transcripts from earnings conference calls with analysts. Our results indicate that CECL has generated faster and greater responses to the macroeconomic environment. However, there has also arisen greater complexity and apparent instances of management control over the estimatingprocess through model input assumptions and the weighting of various forecast scenarios, such that at times, the ACL levels being established appear inconsistent with the related management disclosures about economic outlook. Further, by utilizing analytics with different scenarios and assigning variable weightingof importance, a resulting ACL may not represent management’s “best estimate†but instead may reflect “contingency†considerations for relatively improbable adverse economic developments.

Keywords: CECL; Credit Losses; PCL; ACL; Provision for Credit Losses; Allowance for Credit Losses (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.theibfr2.com/RePEc/ibf/acttax/at-v15n1-2023/AT-V15N1-2023-5.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ibf:acttax:v:15:y:2023:i:1:p:83-103

Access Statistics for this article

Accounting & Taxation is currently edited by Terrance Jalbert

More articles in Accounting & Taxation from The Institute for Business and Finance Research
Bibliographic data for series maintained by Mercedes Jalbert ( this e-mail address is bad, please contact ).