Preparing finance organizations for CECL and IFRS 9 | KPMG | US
close
Share with your friends

KPMG and SAS | Preparing finance organizations for CECL and IFRS 9

KPMG and SAS | Preparing for CECL and IFRS 9

New standards usher in a new era of risk management

1000

Contact

Partner, Advisory

KPMG in the U.S.

Contact

Related content

cecl-kpmg-sas

Click for Executive Summary

Preparing finance organizations for CECL and IFRS 9

The last financial crisis revealed that financial institutions did not always hold sufficient reserves to cover their exposure to risk. To correct this, accounting rulemakers across the globe have introduced changes to make financial reporting more forward-looking and reflective of the true portfolio risk.

In the United States, the Financial Accounting Standards Board (FASB) introduced CECL, part of ASU 2016-13, Financial Instruments – Credit Losses, as the new accounting standard for the recognition and measurement of expected credit losses (ECL) for loans and debt securities. CECL, which takes effect in 2020, follows the recent introduction of similar changes to global accounting rules under International Financial Reporting Standard 9 (IFRS 9). Both standards fundamentally change how financial institutions estimate and report portfolio losses and will have drastic impacts on how they manage their portfolios.

The more complex your balance sheet, the more substantial the scope of the change. The new CECL and IFRS 9 standards require a deeper level of credit modeling, analysis, and reporting than was previously required. And these changes are significant in terms of how banks will manage risk and financial data, build their analytic platforms, and share information between departments.

Fortunately, the alliance between KPMG LLP and SAS delivers industry-leading services and technology to help your company navigate the new standards. KPMG takes a multidisciplinary approach to CECL and IFRS 9 adoption, providing services related to accounting and regulatory change as well as the broader risk management and financial data environment. Adopted by more than 75 global financial institutions, SAS’s ECL software solution is a market leading modeling and orchestration platform. Together, KPMG and SAS can help your organization address the challenges of these new accounting standards.

KPMG: A broad and deep approach to CECL services

KPMG is focused on providing high-quality, in-depth services related to accounting change and regulatory requirements for new ECL standards. Because these new rules affect multiple aspects of a financial institution’s credit risk management framework—including credit models, data processes, and IT systems—KPMG’s experienced industry and risk professionals also offer a broad range of supporting services that include:

  • Data sourcing and data quality controls – Assess data sources, quality, controls, and lineage; create source-to-target mapping and data extract, transform, and load (ETL) jobs
  • Model design, development, and implementation – Build champion, challenger, and benchmark model designs; then, prototype, calibrate, and help implement those models
  • Model execution and production automation – Optimize automated workflow in a controlled environment with limited manual intervention
  • Results review and effective challenge – Review model output and provide supporting analysis; develop documentation for model design and limitations
  • Accounting and reporting – Develop documentation for accounting policy and Sarbanes-Oxley controls; recommend ways to remediate deficiencies and help clients prepare for CFO attestation.

KPMG’s professionals bring practical experience, the latest technology tools, deep financial industry knowledge, and cross-functional skills to create a sustainable path towards CECL and IFRS 9 implementation and to help you capitalize on the strategic opportunities the change affords.

SAS: A powerful and efficient solution for financial institutions

One of the world’s largest privately held software firms, SAS offers a robust production platform for ECL calculations under CECL and IFRS 9. The SAS ECL solution is model agnostic, supporting models coded with SAS, R, Python, C++, and other languages. No matter what statistical language your company uses for models, you can benefit from the following capabilities in SAS’s ECL solution:

  • Data mart and data management tools so you can source, transform, and load relevant ECL data from any number of data warehouse and origination systems
  • Model implementation platform that greatly streamlines model management and maintenance and accelerates the production process for CECL and IFRS 9 estimates
  • Embedded controls and auditability to help ensure your process remains transparent and defendable quarter after quarter
  • Menu-driven model execution and production automation that enable you to manage the production process with reduced
    operational risks
  • Customizable dashboards and reports so you can examine model outputs and manage qualitative adjustments and allocation
  • Accounting and reporting capabilities that enable you to create journal entries and disclosures as well as produce management reports at multiple levels of granularity.

With dedicated sales, support, and development resources, SAS delivers a flexible and robust risk software solution scalable for organizations of all sizes.

A broad services and software solution

The alliance between KPMG LLP and SAS delivers CECL and IFRS 9 offerings that combine the capabilities and resources of two of the leading market providers: SAS with the dedicated ECL software platform and KPMG with enablement services including in-depth accounting, finance, tax, modeling, and risk specialization. This offering allows organizations to develop or leverage models for ECL, generate or import cash flows for securities and other assets, and create the required journal entries and disclosures to complete the accounting requirements within a controlled process framework.

KPMG and SAS’s joint ECL solution is centered on the following four key components:

  • Data sourcing and management
  • Risk models
  • Accounting calculations and reporting capabilities
  • All within a controlled process orchestration environment.

With the right experience and technology to assist in ECL transitions, KPMG and SAS can guide you through the assessment, design, and implementation phases.

Assess

KPMG and SAS use a seven-step approach for change assessment and a readiness diagnostic. The results of the diagnostic focus efforts on areas that are most critical to your project’s success. The outcome of this phase creates a structure and plan for the subsequent phases of the CECL or IFRS 9 transition.

Design

Leveraging the gap analysis and information from the assess phase, KPMG and SAS work with you to design appropriate accounting policies, operational practices, models, systems, and data management approaches to create ECL loss projections. This forms the basis of governance and business requirements designed for CECL and IFRS 9 loss forecasting and informs the implementation choices made in the final phase.

Implement

KPMG and SAS can assist you in implementing the CECL industry leading practices scoped in the previous phases. Using SAS’s tested, phased approach for implementation, an initial configuration is executed on a representative set of portfolios. This pilot is then expanded to include all relevant portfolios, followed by refinement and testing prior to a final go-live date.

Adapt

A successful CECL or IFRS 9 implementation often involves new approaches to aggregating credit risk data and measuring portfolio credit risk, while aligning efforts from multiple stakeholders. Working together, KPMG and SAS provide the resources to deliver complex projects that encompass regulatory review, audit implications, and high visibility.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. Any trademarks or service marks herein are the property of their respective owners.

Connect with us

 

Request for proposal

 

Submit