CECL Consulting

The Current Expected Credit Losses (CECL) standard creates a significant burden for financial services companies with its requirement to forecast, record, and estimate lifetime credit losses today, based on historical, current, and future conditions.

Creating an accurate estimate is a complex, multistep process and many finance teams face challenges to create and validate the right models, whether working with a third-party vendor or handling it in-house. The allowance for credit losses (ACL) estimate can be based on a multitude of factors, including loss history, portfolio composition, model type, forecast and time horizon assumptions, among others, and each is potentially unique to the organization.

Data restrictions, inadequate forecast assumptions, or general lack of model understanding can result in an inadequate loss estimate, and require an organization to rework models, reissue financial statements, or impact regulatory compliance, which can be costly.

We have worked with hundreds of financial services companies, and have seen common issues and heard frustrations from our clients surrounding CECL, including:

• Inadequate documentation to support critical assumptions
• Lack of model understanding and overreliance on third-party vendors
• Significant and unsubstantiated changes to the CECL methodology
• Unexplained volatility in credit loss provisions
• Inaccurate and incomplete loan data within the CECL calculation
• Insufficient internal controls over financial reporting surrounding CECL

Your organization can address these issues and create stronger outcomes by working with an advisor experienced in analyzing and validating CECL models. We can help with basic CECL compliance while also providing insights for improving data quality and methodologies, ensuring assumptions and inputs are reasonable and supportable, and instilling confidence to stakeholders that internal controls are operating as intended.

Whether your organization needs to fulfil a CECL model regulatory or internal audit requirement, or desires assistance to enhance the overall process or address a specific concern, we can help you through it.

CECL consulting solutions can include:

• Full scope model validation
• Limited scope model validation
• Methodology review
• Internal audits
• Data analytics and information services, including automation  
• Technical accounting documentation
• Assessment of internal controls over financial reporting
• Board or management training

No matter which type of CECL services your business needs, our process brings deep understanding and experience to your CECL compliance journey.

• Discovery. Together with your team and any third-party vendor you use, we’ll dive deep into your current models, methodologies, process flows, assumptions, and outcomes.
• Data Collection and Testing. We’ll access your data without disrupting your organization and run detailed tests to confirm its accuracy.
• Model Review and Validation. We can review internal controls and significant assumptions and validate that model for conceptual soundness, ongoing monitoring, and outcome analysis.

Serving the financial services industry for more than 40 years, our professionals support organizations of varying sizes and asset levels across the sector including banks, credit unions, and non-depository lenders.

Additionally, our one-firm approach allows your organization to tap into the full resources of our firm to gain guidance and solutions for a range of business concerns that can impact CECL, including finance, taxes, audits, and more.