Comment Letter to AICPA on “Audit Evidence”

The American Bankers Association (ABA) appreciates the opportunity to comment on the Proposed Statement on Auditing Standards – Audit Evidence (the Proposal). We are commenting on this Proposal due to the potential implications the final standard may have on audits of banks. Along with the recent auditing standard that was approved by the International Auditing and Assurance Standards Board on Auditing Estimates and Related Disclosures (ISA 540), the Proposal addresses key issues that banks will face from auditors as a result of the Current Expected Credit Loss (CECL) accounting standard for the measurement of credit losses. By requiring the measurement of lifetime expected credit losses, CECL changes both the timing and size of the estimated allowance for credit losses. Vastly different historical data, newly gathered from various operational administration systems, will be used to support CECL estimates and, unlike any other topic in generally accepted accounting principles, a highly subjective forecast of the future will be performed that does not conform to “market-based” assumptions. In short, CECL changes the nature of the bank audit and will put to the test many of the basic concepts discussed in the Proposal and in ISA 540. As the expected nature and extent of documentation that may be required for auditing purposes can change a bank’s configuration of its CECL estimation system, arriving at a common understanding of practical requirements between auditors and banks will be critical. It is through this lens that ABA views this Proposal.