Practical CECL Transition
Discounted Cash Flow (DCF)
Discounted Cash Flow (DCF) models, while not widely adopted as a means to account for allowance for loan and lease loss under ASC 450-20 (current GAAP), have been accepted as best practice for adherence to other analogous accounting standard objectives. For example, fair value measurement (ASC 820) and purchased credit-impaired (ASC 310-30) both inherently require an understanding/estimate of lifetime credit loss. Forward-focused cash flow models are commonly deployed to accommodate both fair value and purchased credit-impaired requirements resulting in an approach that has a precedent of successful audits and examinations.
In this whitepaper:
- DCF inputs, outputs, assumptions and sensitivities
- Forecast applications
- Specific guidance and conceptual soundness under the context of ASU2016-13 (Topic 326).