FAR, Financial Accounting and Reporting

Sources for Financial Instruments: Credit Losses (CECL)

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's FAR lessons on Financial Instruments: Credit Losses (CECL). The topic rests on ASC 326.

About this topic

Some of the money a company is owed will never arrive. ASC 326 makes the company say so on day one rather than waiting for the loss to appear.

ASC 326 governs how and when an entity records the expected shortfall on those assets. It moved the timing of loss recognition forward by years, which is why it counts as one of the largest changes to United States GAAP in a decade.

Key points

CECL requires a lifetime expected credit loss allowance at initial recognition, not just when a loss becomes probable.
The allowance applies to financing receivables, HTM debt securities, trade receivables, and net investments in leases.
AFS debt securities use a separate impairment model: losses are recognized through an allowance capped at the amount the fair value is below amortized cost.
Historical loss rates are the starting point, adjusted for current conditions and reasonable, supportable forecasts.

What the lessons cover

From the incurred-loss model to CECL (ASC 326-20-30-1)
Scope: which assets use CECL, and the three models side by side (ASC 326-20-15-2)
Measuring the allowance over the contractual life (ASC 326-20-30-6)
The allowance as a contra-asset, and the liability for unfunded commitments (ASC 326-20-45-1)
Write-offs and recoveries (ASC 326-20-35-8)
Available-for-sale debt securities: a separate model (ASC 326-30)
Disclosures (ASC 326-20-50-1)

Authoritative references

ASC 326-20-15-2 and 15-3, scope: the assets that use CECL, and the assets the Subtopic does not reach, including available-for-sale debt securities and assets measured at fair value through net income.
ASC 326-20-30-1, the allowance as a valuation account deducted from, or added to, the amortized cost basis.
ASC 326-20-30-2 and 30-3, pooling assets that share risk characteristics, with no single method mandated.
ASC 326-20-30-4, the discounted cash flow method: the difference between amortized cost and the present value of expected cash flows.
ASC 326-20-30-6 through 30-9, measurement over the contractual life from three information sets, anchored on historical loss rates but never on the past alone.
ASC 326-20-30-10, the estimate includes a measure of expected loss even where the risk is remote, with collateral-dependent assets carved out by name.
ASC 326-20-30-11 and 30-12, the exposure period set by a present contractual obligation to extend credit, and the continued effect of an embedded credit enhancement.
ASC 326-20-30-13 and 30-15, purchased assets with credit deterioration, where the acquisition-date allowance is added to the purchase price, and the treatment of a purchased asset without deterioration like an originated asset.
ASC 326-20-35-1 and 35-3, the period entry as the change in the required balance, and the true-up of the liability for an unfunded commitment through net income.
ASC 326-20-35-4 through 35-6, the collateral-dependent measurement and the practical expedient using the fair value of the collateral.
ASC 326-20-35-8, write-offs and recoveries.
ASC 326-20-45-1, 45-2 and 45-4, presentation of the allowance as a contra-asset, the liability for unfunded commitments, and the routing of collateral-dependent changes through credit loss expense.
ASC 326-20-50-1, the disclosure requirements.
ASC 326-20-50-5, 50-6 and 50-9, credit quality indicators, the vintage disclosure for financing receivables and net investments in leases, and the exemption of short-term trade receivables.
ASC 326-20-50-11, 50-13 and 50-14, the methodology description, the allowance roll-forward, and the aging of past-due amounts.
ASC 326-20-55-52, 55-53 and 55-56, the illustrations of the two-step recovery sequence, the direct reduction of expense, and unconditionally cancellable commitments.
ASC 326-30-35-1 through 35-3 and 35-6, impairment of an available-for-sale debt security: fair value below amortized cost, the allowance for the credit portion with the remainder in other comprehensive income, the cap at the shortfall, and measurement by present value of cash flows.
ASC 326-30-35-10 through 35-14, the intent-to-sell write-off, the bar on reversing the allowance below zero, the incorporation of the write-off and recovery rule, and the bar on adjusting the new basis for a later recovery.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.