CECL models can involve significant management judgment, which could make them subject to heightened scrutiny. An intensive review of the organization’s CECL model is well worth the investment if it provides a more stable foundation for adoption and future reviews.
Some validation services might offer lower costs, but they do so by providing less extensive evaluations. Thorough validators will dig deep into data analysis and replicate model results.
Before making any commitment for model validation services, organizations should ask potential model validators how broadly their process will extend; how deep into the design, data, and implementation of a model they will investigate; and how extensively they’ll document their findings.
A CECL model can also influence management behaviors, including risk appetite and estimations. Validation findings might be of great interest to regulators and to an organization’s internal auditors and board as well. A comprehensive validation and reporting process can help answer more questions about a CECL model and the influence it might have on management behavior.