Expected credit losses (ECLs) that are estimated over the life of a financial instrument (loans, debt securities, etc.), while being recognized at the present (with immediate effect). Recognition and measurement of expected credit losses for such instruments take place now. Entities recognize lifetime expected credit losses (LECLs)- allowances for credit losses (ACLs) – for a wide range of financial assets based not only on past events and current conditions, but also on future forecasts that are both reasonable and supportable.

The calculation of ECLs impacts an entity’s credit risk modeling, risk tolerance, capital levels, as well as business strategies and portfolio mix.

As an approach, current expected credit losses (CECLs) provide users of financial statements with more forward-looking information, while presenting financial assets on financial statements in a way that better reflects the amounts expected to be collected/ recovered. Under this approach, entities must recognize lifetime expected credit losses for financial assets, not just credit losses that have been incurred as of the reporting date.

Additionally, CECL allowances cover a broader range of financial assets- i.e., all financial assets recognized at amortized cost, including held-to-maturity debt securities (HTM debt securities).