Investor Presentaiton
Accounting policy change to CECL(1)
The following table sets forth the impact to the financial position of the Company and retained earnings
upon adoption of the standard on January 1, 2020:
(RMB million)
December 31, 2019 CECL adoption impact
January 1, 2020
Credit loss allowance for assets
Quality assurance receivable
809.5
35.0
844.5
Loans receivable
316.1
303.3
619.4
Accounts receivable
145.7
142.1
287.8
Liabilities
Quality assurance payable
4,776.2
690.1
5,466.3(2)
Retained earnings
Total pre-tax impact
1,170.5
Tax effects
(287.5)
883.0
(1) Effective January 1, 2020, FinVolution Group adopted the ASC 326, Measurement of Credit Losses on Financial Instruments or "CECL", using a
modified retrospective method. As a result of adopting ASC 326, the Company recognized the cumulative effect of initially applying the standard as a
decrease of approximately RMB 883.0 million to the opening balances of retained earnings.
The adoption of this standard established a single credit loss model for all financial assets carried at amortized cost and certain off balance sheet
credit exposures (i.e. guarantees). Under ASC 326, the Company is required to record the expected credit losses of the financial assets and off
balance sheet credit exposures upon initial recognition, which is typically earlier than the old standard. Also, the CECL framework requires our
estimate to reflect expected credit losses over the full expected life and considers expected future changes in the macroeconomic conditions.
Further, before the adoption of ASC 326, guarantee liabilities subsequent to initial recognition, was recorded at the higher of our stand ready obligation
(ASC 460 component) and the contingent component (ASC 450 component). Upon adoption of ASC 326, the expected credit losses, which replaces
ASC 450 component, was recorded separately from and in addition to the ASC 460 component upon initial recognition. Subsequently, the ASC 460
component is released as revenue systematically over the term of the loans and the expected credit losses is trued up based on expected life time
credit losses of the loans covered by the quality assurance commitments at each balance sheet date..
(2) Upon adoption of ASC 326, quality assurance payable is separated into deferred guarantee income (i.e. the unamortized ASC 460 component of
guarantee) amounting to 1,873.3 million and expected credit losses for quality assurance commitment (i.e. CECL liability) amounting to 3,593.0 million.
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