IDEAS home Printed from https://ideas.repec.org/a/ibf/acttax/v15y2023i1p83-103.html

Does Current Expected Credit Loss Accounting Reflect A Best Estimate? Time Series Evidence From Credit Loss Reporting

Author

Listed:
  • Arianna Spina Pinello
  • Ernest Lee Puschaver

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.

Suggested Citation

  • Arianna Spina Pinello & Ernest Lee Puschaver, 2023. "Does Current Expected Credit Loss Accounting Reflect A Best Estimate? Time Series Evidence From Credit Loss Reporting," Accounting & Taxation, The Institute for Business and Finance Research, vol. 15(1), pages 83-103.
    • Handle: RePEc:ibf:acttax:v:15:y:2023:i:1:p:83-103
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v15n1-2023/AT-V15N1-2023-5.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michael Jacobs, 2019. "An Analysis of the Impact of Modeling Assumptions in the Current Expected Credit Loss (CECL) Framework on the Provisioning for Credit Loss," Journal of Risk & Control, Risk Market Journals, vol. 6(1), pages 65-112.
    2. Germán López‐Espinosa & Gaizka Ormazabal & Yuki Sakasai, 2021. "Switching from Incurred to Expected Loan Loss Provisioning: Early Evidence," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 59(3), pages 757-804, June.
    3. Arianna Pinello & Lee Puschaver & Ara Volkan, 2020. "The Relationship Between Critical Accounting Estimates And Critical Audit Matters," Accounting & Taxation, The Institute for Business and Finance Research, vol. 12(1), pages 23-33.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Yonghai & Wang, Gaomiao, 2025. "Risk management disclosure and risk premia of commercial banks in China: evidence from global systemic importance assessment indicators," Global Finance Journal, Elsevier, vol. 67(C).
    2. Ghosh, Saibal, 2022. "Elections and provisioning behavior: Assessing the Indian evidence," Economic Systems, Elsevier, vol. 46(1).
    3. Miguel Resende & Carla Carvalho & Cecília Carmo, 2024. "Impacts of the Expected Credit Loss Model on Pro-Cyclicality, Earnings Management, and Equity Management in the Portuguese Banking Sector," JRFM, MDPI, vol. 17(3), pages 1-19, March.
    4. Buchetti, Bruno & Perdichizzi, Salvatore & Santoni, Alessandro, 2025. "Fast to cut, slow to restore: Bank lending responses to IFRS 9 stage migrations," Economics Letters, Elsevier, vol. 254(C).
    5. Xiao Li & Jeffrey Ng & Walid Saffar, 2024. "Accounting-Driven Bank Monitoring and Firms’ Debt Structure: Evidence from IFRS 9 Adoption," Management Science, INFORMS, vol. 70(1), pages 54-77, January.
    6. Granja, João & Nagel, Fabian, 2025. "Current Expected Credit Losses and consumer loans," Journal of Accounting and Economics, Elsevier, vol. 80(1).
    7. Fulvia Fringuellotti & Thomas Kroen, 2024. "Payout Restrictions and Bank Risk-Shifting," Staff Reports 1123, Federal Reserve Bank of New York.
    8. Alberto Quagli & Paola Ramassa & Marco Venuti, 2025. "How do global crises impact accounting regulation? 2008 financial crisis and COVID-19 in the EU IFRS regulatory space," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 29(2), pages 281-317, June.
    9. Yonghui Lian & Jie Li & Feng He, 2025. "How Does Climate Policy Uncertainty Affect Banks Loan Loss Provisions?—Evidence From China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(5), pages 3039-3066, July.
    10. Böhm, Adrian & Eufinger, Christian & Kadach, Igor & Sakasai, Yuki, 2025. "Green banking illusion? The influence of “Eco-Conscious” bank shareholders on credit allocation," Journal of Corporate Finance, Elsevier, vol. 92(C).
    11. Li, Valerie & Luo, Yan, 2023. "Costs and benefits of auditors' disclosure of critical audit matters: Initial evidence from the United States," Advances in accounting, Elsevier, vol. 60(C).
    12. Yadira Salazar & Ana Zorio-Grima & Paloma Merello, 2025. "New disclosures on expected credit loss: effects on Banking credit risk and its links with portfolio specialization," Journal of Banking Regulation, Palgrave Macmillan, vol. 26(4), pages 878-890, December.
    13. Bischof, Jannis & Haselmann, Rainer & Kohl, Frederik & Schlueter, Oliver, 2022. "Limitations of implementing an expected credit loss model," LawFin Working Paper Series 48, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    14. Tristan Brouwer & Job Huttenhuis & Ralph ter Hoeven, 2021. "Empirical results for expected credit losses of G-SIBs during COVID-19. The proof of the pudding is in the eating," Maandblad Voor Accountancy en Bedrijfseconomie Articles, Maandblad Voor Accountancy en Bedrijfseconomie, vol. 95(11-12), pages 381-396, December.
    15. Salazar, Yadira & Merello, Paloma & Zorio-Grima, Ana, 2023. "IFRS 9, banking risk and COVID-19: Evidence from Europe," Finance Research Letters, Elsevier, vol. 56(C).
    16. Cascino, Stefano & Daske, Holger & Defond, Mark & Florou, Annita & Gassen, Joachim & Hung, Mingyi, 2023. "Reflections on the 20-year anniversary of worldwide IFRS adoption," LSE Research Online Documents on Economics 120205, London School of Economics and Political Science, LSE Library.
    17. Jorge Abad & Daisuke Ikeda & Javier Suarez, 2025. "From Incurred to Expected Loss: Implications for Bank Lending," Working Papers wp2025_2509, CEMFI.
    18. Daniel Dejuan-Bitria & Wayne R. Landsman & Sergio Mayordomo & Irene Roibás, 2024. "How do changes in financial reporting standards affect relationship lending?," Working Papers 2437, Banco de España.
    19. Lucas Mahieux & Haresh Sapra & Gaoqing Zhang, 2023. "CECL: Timely Loan Loss Provisioning and Bank Regulation," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 61(1), pages 3-46, March.
    20. Vladimir Obradović & Milan Čupić & Dragomir Dimitrijević, 2024. "Financial reporting in times of crisis: The case of the Serbian developing economy during COVID-19," Australian Journal of Management, Australian School of Business, vol. 49(4), pages 722-739, November.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibf:acttax:v:15:y:2023:i:1:p:83-103. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mercedes Jalbert The email address of this maintainer does not seem to be valid anymore. Please ask Mercedes Jalbert to update the entry or send us the correct address (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.