28 Where has the time gone? Unbelievably, the industry is six short months away from adopting CECL. Thankfully, the six years since CECL was announced have been quiet, relatively straightforward years allowing you and your bank time to prepare. But it is now time to put the finishing touches on your CECL journey. Whether your CECL model is being developed in-house or through third-party software, implementation can be challenging, complex, and unique to each adopter. As a model is being built, an institution should assemble documentation required to support key assumptions and decision points in the estimate of expected credit losses. While thorough and complete documentation will require significant time and effort to produce, it will provide value and time savings during senior management, board, regulator, and auditor reviews. Why Document? Documentation throughout implementation is a critical yet often overlooked component of a successful CECL implementation process. Although effective documentation requires time and resources, there are many benefits that outweigh these costs. Such benefits include: • Meeting disclosure requirements • Enhancing model understanding • Assisting in exams, audits, and model validations • Supporting policy updates • Creating a repeatable allowance calculation process Regulators and auditors will expect organizations to understand their model and be able to articulate why it is appropriate for their institution. Documenting key assumptions and decision points demonstrates that management has an understanding of their CECL model. Without thorough documentation regarding these assumptions and decision points, it will take auditors and regulators more time to align the model with the standard. The added time can lead to more expense and frustration for the institution. Further, strong documentation will allow institutions to better mobilize for additional changes to the model and its assumptions in the future. Proper Documentation Makes a Difference for CECL Implementation By Michael Flaxbeard, CPA, FORVIS Director, Andrew Wallace, CPA, FORVIS Manager and Alex Orr, CPA, FORVIS Associate, BKD
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