Auditors focus on CECL model governance
Allison Tanju, Assurance Quality Leader at FORVIS, noted that auditors’ attention on CECL post-implementation may focus on different areas than earlier, though it hasn’t necessarily lessened.
“I wish I could say it got easier… but I’ve seen more of a shift,” she said.
Auditors during implementation focused on model selection and documentation for an institution’s choice. Now, the scrutiny is tied to model governance, including assumptions and whether the model put in place four years ago or two years ago remains reasonable. After all, COVID and other aspects of the economy, mergers and acquisitions, and other factors may have had an impact on what’s driving losses. “Are your peer groups still the same? What you were you using for your loss drivers --- is that still the same?” she asked.
Panelists recommended setting a regular schedule for management to review methodology and assumptions, then documenting what changed, why, and why those decisions are reasonable.
"You need a management team that's challenging what's going into it, your existing process, and whether changes need to be made,” said Mark Scriven, Principal with Elliott Davis.
Even if assumptions stay the same, documenting board minutes, committee deliberations, and decision logs of management’s rationale will demonstrate “ownership” and make for a smoother review by auditors and examiners. “The optics of saying nothing, it kind of indicates a little smoke,” said Neekis Hammond, Abrigo Vice President of Advisory Services. “And where there's smoke, there's fire.”
