Current Expected Credit Losses (CECL) for Nonprofits: What You Need to Know

FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (CECL) is effective for private companies for fiscal years beginning after December 15, 2022. 

What is CECL?

FASB now requires the use of the current expected credit losses (CECL) impairment model. This model requires the immediate recognition of expected credit losses over the life of the asset using historic, current, and future information. 

Additionally, with implementation, you will need to prepare a lookback calculation using CECL for the opening balances to determine if there are any significant changes that would require adjustment to opening balances.

When does CECL apply?

CECL applies to trade receivables that result from revenue transactions within the scope of FASB ASC 606. As a refresher, ASC 606 applies to exchange transactions, which exist when there is a transfer of promised goods or services in exchange for revenue. Common revenue streams for nonprofits that typically fall under ASC 606 include sales of products, program service fees, membership fees, tuition, advertising, and special events. These revenue streams will need to be evaluated and implemented under the new CECL guidance.

It is important to note CECL does not apply to promises to give, also known as contributions or pledges receivable. Contribution based receivables are scoped out of CECL.

CECL also applies to other financial assets not recorded at fair value such as loans, held to maturity debt securities, reinsurance receivables, net investment in leases, loan commitments, and certain financial guarantees. 

Implementing CECL

Our team has developed a podcast, webinar, and other resources to assist our clients with implementing CECL. Below are links to our podcast and webinar that give you an overview of CECL including methods for implementing CECL and considerations for implementation. The client considerations pdf will aid you in compiling the basic information needed to start the implementation process. We recommend reviewing the resources below and then discussing with your Herbein team the effect CECL will have on your organization. 

• Overview of CECL podcast – Decoding CECL: An Overview of the Financial Reporting Changes
• Implementing CECL webinar – Implementing Current Expected Credit Loss ASU 2016-13
• Client Considerations pdf

Article contributed by Brittany Nimal