Pub. 7 2018 Issue 3

The CommunityBanker 8 F E A T U R E CECL: It Impacts ALLL of Your Bank By Josh White, CPA, CFIRS and Marshall Trull, CPA, CRCM T he Current Expected Credit Loss model, or CECL, has been a topic at every conference, training and webinar over the last several years and will continue to be a focus years after the required implementation dates. The discussion has been primarily centered around the Chief Financial Officer and the accounting department, focusing on various model types, data requirements, and disclosure requirements this new loan loss reserve meth- odology will bring. However, the dialogue should not stop within the walls of accounting and finance, as CECL will impact almost all aspects of the institution. Vendor management might not be an area initially considered applicable to CECL; however, many institu- tions are looking to outside vendors in order to assist with CECL compliance by the applicable deadline. A risk assess- ment process should be conducted during the initial evalua- tion of possible CECL vendors. The risk assessment should be performed by senior management and include the use of various functional areas such as internal audit, compli- ance, information technology, and legality. Subsequent to the preliminary risk assessment, initial due diligence should be performed prior to establishing a contract with a third party vendor, especially if your bank expects to enter into a long- term contract. Given CECL’s depth and complexity, the vendor should be subject to your institution’s most comprehensive due diligence procedures. And any third-party vendor contract as- sociated with CECL should be reviewed by your legal counsel, in addition to review and approval by the Board of Directors. While the Federal Reserve, along with the FDIC and OCC, have approved a joint proposal allowing the phase in of the day-one regulatory capital effects of CECL adoption over three years, the standard’s impact to capital should not be underestimated. As CECL includes future potential losses in reserve calculations, intuitively additional reserves