In its Staff Update and Preview of 2020 Inspection Observations, published earlier this month, the Public Company Accounting Oversight Board noted ongoing deficiencies in the auditing of loan losses and an increase over 2019 in deficiencies, specifically on the related internal controls auditing. Accounting estimates, next to revenue accounts, is the area with the second-most-identified audit deficiencies by PCAOB. In addition, PCAOB specifically called out the allowance for loan loss as an estimate that had a high number of deficiencies. As PCAOB inspections continue to identify high numbers of ALL deficiencies, ABA believes many auditors will require more stringent and detailed supporting documentation related to the assumptions and calculations used in the ALL estimate.
As the current expected credit loss standard becomes effective for non-SEC registrants in 2023, ABA continues to monitor how smaller banks can effectively implement the new standard in a cost-effective manner. Earlier this year, after years of ABA calls for a “CECL Lite,” the Federal Reserve introduced the Scalable CECL Allowance for Losses Estimator, or SCALE, and ABA is working with the agencies and auditors in how auditing standards can be satisfied in a SCALE environment.