Treating CECL as a One-Time Task
Many institutions may make the mistake of treating CECL compliance as a one-time task. CECL requires regular updates and challenges to financial calculations, especially due to dynamic economic conditions. It’s essential to establish a process for ongoing review and adjustment of CECL calculations.
Failure to Integrate Budgeting and CECL Modeling Processes
Some institutions fail to integrate their budgeting processes with their CECL modeling. This can lead to discrepancies between expected losses in the budget and those calculated under CECL. Aligning these processes ensures that financial assumptions are consistent across the board.
Neglecting Reconciliation with Trial Balances
Failure to reconcile CECL calculations with trial balances can lead to inaccuracies in financial reporting. Regular reconciliation ensures that CECL models accurately reflect the institution’s financial position and are in line with accounting standards.
Inadequate Documentation and Infrequent Updates
Thorough documentation is crucial for supporting financial assumptions and decisions. Institutions should maintain detailed records of their CECL calculations, judgements, and assumptions and regularly update them to reflect changes in economic conditions and internal factors.
Ignoring Potential Regulatory Scrutiny and Lack of Preparedness
While regulators have not heavily focused on CECL yet, institutions should be prepared for increased scrutiny in the future. This includes ensuring that their CECL models are robust, well-documented, and regularly updated to reflect changes in the economic environment.
Avoiding common mistakes in CECL implementation requires a proactive approach and ongoing attention to detail. By treating CECL compliance as an ongoing process, integrating budgeting processes, reconciling with trial balances, and maintaining thorough documentation, institutions can help ensure compliance with CECL requirements and enhance the accuracy and reliability of their financial reporting.
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This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
