CECL Solutions
CECL Solutions
Simplifying CECL with a flexible approach and full suite of services
Navigating the requirements of current expected credit losses (CECL) isn’t easy for most organizations because it’s complex and time-consuming. Baker Tilly advisors understand today’s regulatory hurdles and have the right methodology, technology and modeling experience to help clients not only achieve compliance, but to use their data to their strategic advantage.
Our full suite of CECL services
Implementation
Want a more strategic approach to the new standard? Baker Tilly CECL specialists achieve strategic insight by combining their deep industry knowledge in highly regulated financial service industries with their strong data science acumen and technology platform. The result is a custom solution that fits your business needs.
Outsourced modeling
When you need outsourced modeling resources to run periodic utilization on your CECL model, rely on Baker Tilly CECL specialists. Our Value Architects™ bring big data and technology know-how to help you with any adjustments to your model. Baker Tilly simplifies your regulatory stress with the specialists you need, when you need them.
Validation
Looking for independent validation for your model? Baker Tilly CECL specialists bring another level of credibility. Our team offers a deep bench of financial services industry knowledge and regulatory compliance, data science and technology know-how as well as a track record of CECL model validation. We are ideally situated to help you with your third-party model validation needs.
Value beyond compliance
Get more from your regulatory compliance efforts — build business value with additional testing, reviews and data analyses all using the same data you are already preparing for your CECL process. Our data scientists can identify other strategic insights that can be pulled from your existing data — saving you time and increasing the value of your compliance data.
CECL implementation and validation
For the most critical of all your financial calculations, you can trust Baker Tilly — without worrying about augmenting your staff with hard-to-find data scientists who are well versed in the technology needed to get the job done. More than compliance services, our Value Architects™ bring an advisory mindset that not only protects your value, but also enhances it with a strategic lens to the future. Going beyond the typical one-size-fits-all approach, we customize our offerings, whether you need a full implementation or just specific issues addressed within your operations.
- CECL Implementation – where you are developing a new CECL model that complies with the new standard
- Outsourced CECL modeling – where you periodically bring in specialists to review and fine-tune the model for streamlined utilization of your model
- Independent CECL validation – where you need an independent party to help you understand your key risks and validate the methods you’re employing in accordance with the policies and regulatory requirements (e.g., OCC, FDIC, FRB) specific to your organization
Our job is making your job easier and leaving you with the confidence you need.
Giving you the experience and tools you need to make the CECL transition more effective for your business.
Value Architects™
Baker Tilly Value Architects™ are the trusted CECL specialists that help turn your mandatory compliance into an easier, more strategic process that enhances value for your company.
Our solutions are tailored and customized … never cookie cutter
You deserve an advisor who listens. At Baker Tilly, that’s where we start.
Our advisors have the deep regulatory knowledge to look at your portfolio and its risks, challenge assumptions and offer suggestions that align with your overall business strategy now, and for the future. Cookie-cutter solutions miss the important context specific to your institution and won’t maximize potential opportunities.
We customize our offerings to keep you ahead of the game. We’re responsive, data-savvy and deeply immersed in CECL modeling and experienced in CECL methodology options, implementation and validation. It’s a combination of skills few others can match.
Implementation
You need a more strategic approach to CECL
Navigating the implementation requirements of the CECL standard isn’t something most companies have the knowledge or resources to take on themselves. Due to its complexity and time commitment, it’s difficult to manage without an advisor who not only understands today’s regulatory hurdles, but also knows how to draw on the right methodology options, technology and modeling experience to use data to your strategic advantage. Baker Tilly is here to make it simple for you.
CECL doesn’t identify a specific model, so companies are responsible for selecting, implementing and justifying the models they select. CECL implementations are an enterprise-wide activity, and it is expected that senior management, risk, legal, IT, etc., will all be involved. To provide you with the best methodology and model options, our solutions can be customized to just those you need — at the level of involvement you want.
Training – Educate your internal CECL team and key stakeholders to understand the new standard.
Gap analysis – Understand your current situation and what areas you need to address.
Data stratification – Segment your loan data to minimize your institution’s loan portfolio risk.
Implementing a technology platform – Identify and implement the right technology platform to model your CECL estimate.
Model selection and validation – Select the appropriate methodology option and model parallel runs using your data in our in-house modeling software.
Governance, compliance and risk restructuring – Re-evaluate and enhance governance, compliance and risk policies.
Internal controls testing – Evaluate and test your internal controls over financial reporting (ICFR).
Outsourced modeling
Staffing augmentation and fully outsourced modeling
When you need outsourced modeling resources to periodically run and review your CECL model, lean on Baker Tilly CECL specialists to bring together big data and technology know-how to help you with any adjustments to your model or methodology. Baker Tilly simplifies your regulatory stress with the specialists you need, when you need them. Our team understands the need to co-source or outsource depending on your organization’s resource demands.
Testing your CECL model – Once your organization has your models created, it is essential to test the modeling throughout its first two to three quarters. Our professionals can assist you in running your model, helping you understand issue areas, and adjusting or remediating the model.
Validation
Experienced independent CECL model validation services when you need it
Independent validation will be required for models developed in-house or by a third party. For most organizations, validation will be required at least annually. For your financial statement impact, a best practice is an annual or periodic validation to understand any material impacts.
Our CECL model validation can include a wide range of procedures including:
Model governance and compliance – Evaluate policies and controls to verify the framework is sound and regulatory requirements are met.
Data inputs – Verify the accuracy and cleanliness of data going into the model.
Model assumptions – Review the assumptions developed against the historic behavior of the portfolio and the economic projections expected.
Model methodology and testing – Fully replicate the model using your data and assumptions and our in-house CECL model to identify any variances.
When you are looking to an independent third party for CECL model validation, Baker Tilly CECL specialists bring another level of credibility. Our team of validators have broad industry experience and knowledge in the areas of financial services and regulatory compliance, data science and technology that, when combined, help challenge your model to uncover any problems and provide you with the needed insights to remediate or adjust the model if necessary. Third-party validation provides you with confidence around key assumptions, and a deeper understanding of risk areas.
Value beyond compliance
Model assumptions – review the assumptions developed against the historic behavior of the portfolio and the economic projections expected.
Through the data and processes used to comply with the myriad regulations your organization faces, our regulatory compliance and data scientists can build value. We will help you understand opportunities for growth, recognize risks in more proactive ways and glean insight from the metrics to help you run your business through:
Loan portfolio reviews – Understand exactly what your loan portfolio is made of including major concentrations, origination and migration trends, and pricing movements.
Stress testing and scenario analysis – Analyze how your loan portfolio will perform under stressed economic and financial conditions and develop strategies to mitigate the increased risk.
Capital adequacy and stress-testing analysis – Assess the impact on your institution’s capital levels that would arise from immediate unfavorable conditions or increased concentration limits.
Back-testing and assumption testing – Leverage the historical data provided during year-over-year CECL validations to perform real-time back-testing to major assumptions.
Data quality – Identify gaps in stored data or address data quality issues for subsequent CECL reviews and enhance data and processes for other integrated risk assessments (ALM, budgeting, etc.)
Latest insights
Understanding CECL parallel runs and model validations
This informative article discusses an overview of the current expected credit loss (CECL) parallel runs and model validations
CECL implementation DCF model: understanding the ins and outs of CECL models
Watch Baker Tilly's latest webinar in our CECL webinar series, in which we reviewed the discounted cash flow (DCF) methodology, discussed model risk management and explored best practices for your current processes.
Model risk management implementation
In 2016 the Financial Accounting Standards Board issued a current expected credit losses (CECL) standard estimating allowances for credit losses which will cause financial institutions to implement another new model, understand the model and how to best implement it for you company.
Bank Director: Taking model risk management to the next level – better business decisions from data consistency across models
This Baker Tilly article discusses how data consistency across models allows executives to go beyond box-checking compliance exercise and make better business decisions.
Our professionals
On Nov. 15, 2019, the Financial Accounting Standards Board (FASB) updated the effective date of the current expected credit losses (CECL) standard for certain small public companies and other private companies. The revised effective dates of the standard they updated at that time are as follows.
SEC filers, excluding smaller reporting companies (SRCs): Fiscal years beginning after Dec. 15, 2019
All other entities, including SRCs: Fiscal years beginning after Dec. 15, 2022 (1)
For calendar-year entities, adoption would be required on Jan. 1, 2023.
The scope
The scope is broad and applies to many financial assets. The CECL methodology applies to the measurement of credit losses on financial assets measured at amortized cost, including:
- Financing receivables
- Held-to-maturity (HTM) debt securities
- Receivables from revenue transactions within FASB Accounting Standards Codification (ASC) Topic No. 606, “Revenue from Contracts with Customers” or ASC 610, “Other Income”
- Receivables from repurchase agreements and securities lending transactions
- Reinsurance receivables
It also applies to off balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments, except for instruments within the scope of ASC 815, “Derivatives and Hedging”) and net investments in leases recognized by a lessor.
CECL implementation process
As the incurred loss model is being replaced with the CECL model requires advance planning to calculate allowance for loan and lease losses (ALLL) more efficiently. It also brings change for your data collection processes. Our experience and tools of understanding and implementing this standard — and the requirements and deadlines that go with it — allows us to help you plan for and implement its adoption in your accounting and financial reporting and data collection.
Model validation of CECL model or parallel run review
CECL is the largest accounting change the financial sector has seen in years. One of the biggest challenges is that it doesn’t have crystal-clear guidance. If you have already implemented/adopted CECL or currently running parallel runs of CECL model, you should consider having these CECL models independently reviewed and validated.
We’ve already helped a variety of banks and financial services companies confidently validate their CECL models. We can help yours, too.
Regulatory expectations
Baker Tilly model and credit risk professionals have a deep understanding of ALLL/CECL models, including:
- Independent periodic model validation of CECL and other bank models (i.e. ALM/IRR, BSA/AML, liquidity, etc.)
- 2001 and 2006 policy statement requirements
- Prohibition of external auditors from performing under independence requirements (for institutions with more than $500 million in assets)