CECL – Managing audit requirements and expectation to minimize duplication of efforts with auditors and regulators

CECL – Managing audit requirements and expectation to minimize duplication of efforts with auditors and regulators

By Matthew Clohessy, SVP, Audit Manager, Keybank

CECL 2019 is taking place in New York City on 27-28 March, 2019 – find out more here www.cefpro.com/cecl

Can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I’ve been in an internal audit role at mid-sized banks for the past 10+ years.  I’ve spent time in a wide range of portfolios through my audit career including digital banking, Information Security, depository and lending regulatory compliance, back office operations, accounting operations and wealth management. My focus over the past few years has primarily been around Allowance for Loan and Lease Losses (ALLL), commercial loan review, commercial lending operations and credit risk governance.

What, for you, are the benefits of attending a conference like CECL 2019 and what can attendees expect to learn from your session?

CECL will have direct and indirect impacts to many divisions within organizations; hearing from a wide range of professionals on the requirements and challenges for their respective disciplines at conferences such as CECL Congress helps to provide participants a more holistic view on the needs of their organizational partners.  My session will focus on providing some guiding principles to internal auditors and to provide recommendations for 1st and 2nd line participants insights to the types of expectations they may see from their auditors.

What are the key considerations that auditors should consider when building a targeted plan for 2019?

Given the scope and magnitude of CECL, it’s important for Auditors to define what their strategy or plan is to incorporate CECL implementation and compliance within their risk universe and obtain appropriate levels of coverage. A key part of defining an appropriate strategy is assessing the partnership between first, second and third line stakeholders. Depending on the strength of the divisions, as assessed in review results over the respective areas, and the working relationship that Internal Audit has with those divisions, it will drive the scope and depth of review activities that Internal Audit would conduct versus leveraging and collaborating with first and second line partners.

What challenges and opportunities need to be considered when trying to minimise duplication of efforts with internal and external audit and regulators?

The challenges in avoiding duplication of efforts between stakeholders is that each party may have different review objectives that necessitate their own unique set of work and there can be varying degrees of appetite to leverage the work conducted by other stakeholders.  Opportunities to reduce duplication can arise by developing detailed review plans and discussing them with all pertinent stakeholders.  Through open dialogue of granular coverage plans, specific areas where work can be leveraged or areas to combine document and meeting requests can be identified.

How do you see the impact of CECL evolving over the next 6-12 months?

As institutions start running preliminary results of their new CECL conforming ALLL models, the need for up front recognition of provision expenses could create downstream impacts to the profitability of certain product offerings.  Potential shifts in product offerings or strategies could create or change certain risks to an institution.  The impacts to capital management and planning could be significant as well depending on how much CECL impacts the ALLL balance that institutions will maintain and whether the existing thresholds that regulators allow for ALLL balances to be accounted for in financial institution capital requirements and stress testing measurements will stay as they are.