With changes to bank accounting on the horizon, including the Financial Accounting Standards Board’s Current Expected Credit Loss accounting standard and upcoming requirements to disclose bank loans at their so-called “exit price,” ABA noted that many auditing firms will need to employ experts and pricing specialists and that banks will need to greatly expand the documentation supporting their estimates. In fact, the proposals, issued by the Public Company Accounting Oversight Board and the International Auditing and Assurance Standards Board, “will result in significantly higher audit costs and, possibly, the end of the ability of many local auditing firms to audit community banks,” ABA said in letters to the groups.
Both proposals call for auditors to increase “professional skepticism,” which would effectively mean challenging bank management’s assumptions related to accounting estimates. They also recommend reviewing the sensitivity of various assumptions used in the estimates — a process that would be akin to stress testing.
In the days leading up to the issuance of the final CECL standard, ABA noted an increased level of scrutiny being applied to large bank audits. If approved, the proposals would formally codify these practices, which would make it impossible for community banks to avoid incurring higher costs. Read the PCAOB letter. Read the IAASB letter. For more information, contact ABA’s Mike Gullette.
