SAS® helps banks tackle CECL, the biggest accounting change in banking history
New SAS® Expected Credit Loss software specifically designed to handle CECL requirements
The biggest accounting change in banking history. That is the heavyweight title financial professionals and industry groups alike have given the recent US Accounting Standards Update known as current expected credit loss, or CECL. And even though the deadline for complying with the new standard is 2020, its potential impact demands urgent attention and planning.
To help organisations address CECL requirements, SAS is releasing an add-on to SAS® Expected Credit Loss, the foundational risk solution announced in November 2016 (Read more – SAS® helps banks contend with new IFRS 9 accounting standards).
SAS Regulatory Content for CECL includes data tools, model and report templates, and CECL workflows specifically designed to assist customers to accelerate compliance with CECL requirements. By streamlining implementation and establishing processes upfront, SAS helps banks focus on core business challenges.
CECL affects all lenders and fundamentally changes the way institutions account for expected credit losses. Under the previous incurred-loss model, banks estimated impairments using fairly simple analytical models and only recognised losses once a certain quality threshold was triggered. Now, they’ll need to incorporate granular historical information, current conditions and supportable forecasts to calculate expected loss over the life of each loan and recognise the expected losses upon origination.
“Building forward-looking loss models is nothing new. What is new is having to run these models more frequently with the level of scrutiny required for internal controls for financial reporting,” said Laurent Birade, Americas Region Lead for CECL and IFRS 9 at SAS. “We expect that examinations coming from external regulators as well as auditors will raise the burden of proof that banks must show in setting reserves.”
Though 2020 seems far away, it’s clear that meeting the demands of both auditors and regulators will be daunting, and implementing a sustainable solution is difficult with resources already strained.
“First, we have to make sure we have people that can do their everyday jobs while also spending time to implement CECL. That means meeting standards for quality corporate governance and good internal control infrastructure while also maintaining the sustainable profitability of our company,” said Chad Fooshee, Senior Vice President and Deputy Controller for Regions Bank. “We have a general idea of how we’ll get there. But we originally thought we could run parallel in 2019 before adopting CECL in Q1 2020. Now we’re realising we need to be ready to run parallel much sooner than that, to allow time to improve the process and ensure all controls are in place.”
SAS Regulatory Content for CECL helps banks meet the computational challenges of the new CECL standards, while at the same time reducing risks tied to implementation and execution. Most importantly, the offering aids customers to speed implementation of sustainable, CECL-compliant systems and provides a well-governed framework for users of different disciplines to collaborate. It includes:
Prepackaged model templates accelerate model development.
- A set of prebuilt templates for a range of industry-standard models makes it easy to compute lifetime expected credit losses (ECL) across the portfolio.
- An input data model supports ECL calculations and financial disclosure reporting.
Self-service reporting templates and visualisations enable quick design and reporting.
- An interactive interface lets analysts aggregate or drill into results on the fly to understand loss drivers and assess financial impacts.
- Self-service templates automate disclosures and posting into ledgers for enhanced accountability.
- Built-in worksheets combine ECL calculations with other financial data across business entities.
Unified workflow provides greater control, improved collaboration and transparency.
- A project management dashboard monitors the status of monthly CECL reporting and related workflows.
- Ability to customise accounting rules and data flows, and synchronise all risk and finance processes improves auditability, transparency and repeatability.
- Additional SAS scripts add flexibility and enable analysts to seamlessly integrate the disparate parts of the CECL process.
The increasing integration of risk and finance workflows demands that task management and communication become more central¬ised and automated than is common today. Otherwise organisa¬tions will struggle to maintain the expected level of control under the time constraints of financial reporting.
“CECL is a significant accounting change, so communication is going to be critically important,” said Christen Hall, ACL & Acquired Loan Analytics Manager at BB&T. “We’re talking to all parties involved so they can learn what CECL is, what the requirements are, and what the differences are. We’re educating everyone who’s going to be involved in making large decisions – all the way down to the lines of business – on CECL.”
Today's announcement was made at SAS Global Forum, the world's largest analytics conference, with more than 30,000 business and IT users of SAS software participating on-site and online.
To learn more, attend the CECL panel discussion with Chad Fooshee of Regions Bank, Christen Hall of BB&T and Srini Iyer of SAS at SAS Global Forum today at 1:15 p.m. Couldn’t make it? Download the white paper CECL: Don’t Neglect the Fundamentals.
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