Collateral-Dependent CECL for Lease Portfolios
Collateral-Dependent CECL for Lease Portfolios Under U.S. GAAP, a lessor’s net investment in a lease for direct financing leases and sales-type leases is a financial asset measured at amortized cost and falls within the scope of CECL under ASC 326-20-15-2. Leasing companies and bank lessors often ask a focused question: When is the allowance for credit losses (ACL) required or permitted to be measured based on the value of the underlying equipment rather than under the general CECL model? The answer turns on whether the net investment meets the collateral-dependent criteria in ASC 326. 1. Required collateral-based measurement. ASC 326-20-35-4 requires measurement based on the fair value of the collateral when foreclosure is probable . In a leasing context, foreclosure generally aligns with repossession or retaking the underlying asset being probable. When this condition is met, the allowance is measured as the amortized cost of the net investment less the fair value ...