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Accounting for Loan Losses at JPMorgan Chase: Predicting Credit Costs
內容大綱
The case examines how to account for risks associated with loan assets (or receivables) through financial reporting for loan losses (or bad debt expenses) in the context of the adoption of the new accounting standard, Current Expected Credit Loss (CECL) model. CECL required banks to consider future economic conditions and to include forward-looking credit loss estimates in the setting of allowance for loan and lease losses (ALLL). This marked a departure from the previous standard, which is called the incurred loss model. Under that model, credit losses were recognized when it became "probable and estimable" that a credit loss had incurred based on historical data and current economic conditions. The case also explores what banks, regulators, and investors thought about the new method. Both bankers and regulators called CECL the biggest change ever to bank accounting. JPMorgan Chase CEO Jamie Dimon called CECL accounting crazy. Financial Accounting Standards Board member Hal Schroeder indicated CECL would lead to a safer financial system and a more resilient economy. Investors and analysts were trying to figure out the new CECL method and what impact it would have on financial statements.