Build a Shared Understanding and Agreement on Actions

CECL documentation is a crucial part of creating your CECL reserve estimate. It's important to build confidence in the estimate since it will have a big impact on key business decisions. Something as complex as CECL needs documentation showing how the CECL estimate was created. This includes summaries of historical data (including comparisons of different vintages) and the key assumptions that were used. The assumptions relate to key economic factors and how each segment and vintage will behave.

CECL is a subject that should interest many groups in your organization. These include:

Accountants are the natural users of the CECL reserve estimate. If nothing else they need to book entries to adjust the reserve. They also need to capture information for budgeting and forecasting of overall results. Therefore, the 'look ahead' aspect of the CECL tool must capture how the reserve estimate will change due to both paydown of existing balances and the booking of new business.

Various internal committees -- model risk governance, risk management, asset/liability management, etc. -- are the second group of users. Each may have a unique focus and will rely on a subset of standard reports. They may also ask some questions that call for in-depth analysis. The presentation/drill down tool should support these analyses. As new questions are asked repeatedly there may be ideas to create additional standardized reports.

Auditors must work with the accountants to understand the CECL estimates to attest to the reasonableness of the amount. They will need to verify that the analysis is based on complete data and that the application of historical loss experience is logical and accurate. The documentation they require may be broader and reviewed selectively.

Regulators are bound to take a keen interest in the reserve setting process. They may dive deeper into the data and challenge assumptions used. The documentation needs to support the conclusions fully. In the event that there's an open question the drill-down tool should be able to answer it. The regulators have a set of standard reports that are part of each examination. We plan to build out the standard set of reports to address as many of these needs as possible.

Senior managers should be the primary users of the reports and the drill down tool. Why? Because they are constantly asking 'How can we improve our business results?' They also need to choose where to allocate capital which in part should be based on expected losses and the confidence in those estimates. We plan to work together with our clients to create reports that directly address the high level needs of senior managers. If there are 50 different reports, chances are the senior managers will focus on 5 or less.

Line managers will have more specific needs that fall to more granular levels of analysis. They likely will benefit most from the drill down tool which will allow them to slice and dice performance to identify pockets of risk and opportunity. The line managers will be the ones directing marketing and targeting strategies as well as credit underwriting policies and practices. It is important to document changes in all policies and practices so that you have access to this information to help explain changes in portfolio performance.

Your organization's Board of Directors also has a role to play in finalizing and approving financial statements. Separate committees of the Board also may have a specific role. You likely need to prepare a package of documents for each Board meeting. Our goal is to present a set of common reports that will address many of these needs. Other reports can be prepared from the presentation/drill down tool.

As discussed above we will include many standard reports both to address documentation for the CECL reserve estimate and regulatory reporting. Over time we expect to expand this list to include more reports for a wide range of audiences. Beyond the standard set of reports you can also request custom reports. We also hope to allow you to create and save reports that you can recreate as needed.

In total the vast majority of your documentation and reporting needs should be addressed in the standard package. This should save you significant time and effort in pulling together the information you need. We will continue to enhance the standard package to include more reports in order to boost further the value of the service we provide.

Significant data both in breadth and depth of history will be compiled to address CECL. This becomes an asset for your organization, one that can be tapped to research the questions you face. Essentially you can use the same data over and over again to look at different dimensions of your portfolios. The presentation tool will allow you to create custom reports. You will be able to filter data to narrow your analysis.

The more time you spend with the presentation tool digging into the data the more value you will get from it. Putting in some effort should pay significant dividends for each line of business.