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Portfolio Project Option #1: Case: The Future of Measuring Expected Credit Loss

During 2013, the FASB directed its staff to move forward with the drafting of an impairment standard containing a “Current Expected Loss (CECL) Model” with the purpose to better disclose to corporate stakeholders a net realizable measurement for financial assets and liabilities. This FASB measure came about specifically to address the concerns from the Great Recession regarding the true net value of long-term financial assets, like mortgage loan assets held by financial institutions and traded debt, such as the $30 billion in mortgage debt sold to the public during 2008 before it went bankrupt. Currently, Jed Miller is the corporate controller for ABC Corporation looking to purchase high-yielding Citibank mortgage assets at low market price.

Required: As an accountant of ABC Corporation, after reading the two articles in required reading and locating two additional peer-reviewed sources on the topic, provide an appraisal of the expected loss model for Mr. Miller of the CECL. Be sure to compare it to the allowance for doubtful accounts for accounts receivables and address the huge monetary loss the CECL model might have saved ABC Corporation, who purchased Lehman mortgage assets in 2008.

Your well-written paper must be 8-10 pages, in addition to title and reference pages. The paper should be formatted according to the CSU-Global Guide to Writing and APA Requirements. (Links to an external site.)Links to an external site. Cite at least five peer-reviewed or academic sources, in addition to the required reading for the module.

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Perfectsolutions
School: UCLA

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Running Head: THE FUTURE OF MEASURING EXPECTED CREDIT LOSS

The Future of Measuring Expected Credit Loss
Name
Institution

1

THE FUTURE OF MEASURING EXPECTED CREDIT LOSS

2

I am the credit controller of ABC Corporation and I have incorporated the use of
contemporary financial management and resolution tools in the management of finances in the
company. The 2008 recession is one that has had a rather great impact on the current
environment and this is because it affected many companies and individuals towards the end of
the first decade of the 21st century. Companies went through numerous losses and the reason for
this is the fact that their accounts had not been well managed by the various people associated
with the institutions.
ABC is one of the companies that went through numerous challenges and the reason for
this is that it was using Allowance for Doubtful Accounts method of recording information for
the company. The method indicated here is not quit effective and after the recession it engaged in
Current Expected Loss (CECL) Model in managing the finances of the company. Going through
the manner that I as the credit manager managed to incorporate this method and reviewing the
loss model is imperative in having people understand the manner through which the method
enabled the company save itself in 2008 while purchasing Lehman mortgage assets.
The Financial Accounting Standards Board is one of the most effective accounting
organizations in the current environment and this is because it seeks to identify weaknesses in
the accounting sector and offers solutions to these problems (Edwards, 2014). The FASB is the
cone that came up with the Current Expected Loss model and this enabled ABC Corporation to
evade losses that might have impacted the company greatly when purchasing Lehman Mortgage
Assets. One of the way6s through which the model assisted the company is with regard to

THE FUTURE OF MEASURING EXPECTED CREDIT LOSS

3

offering larger allowances. ABC after incorporating the model started offering larger allowances
to the business associates.
The importance of offering these large allowances is that it provided precedent for having
the company spread the liabilities to multiple partners. Through the spread of these liabilities,
there is the assurance that the number of people that would have to pay in case of a risk taking
place would be more and that the effect would not be felt by the company alone. Spreading risks
is important in the modern business environment and the reason for this is that it puts some form
of morale on the associated partners to work effectively and consequently ensure that there is
risk mitigation (Novotny-Farkas, 2016). It is also important to note that when the risk is spread
out, the company has the ability to pay the share of the risk that it is responsible for and continue
carrying out other businesses. The model made this very clear and the consequent of this was
having other external parties assisting in the repayment of debts that the company had with
regard to various projects.
Comparing this to Allowance for Doubtful Accounts, it is impor...

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