Allowance for Credit Losses (ACL) Validation

Our validation process helps to ensure institutions maintain alignment with the Allowance for Credit Losses (ACL) 2020 Interagency Policy Statement and relevant Financial Accounting Standards Board guidance, including Accounting Standards Codification (ASC).

We take a comprehensive approach to review the loan loss reserve methodology for both quantitative and qualitative factors. Our procedures incorporate everything from the risk rating process through the effectiveness of internal controls to the reporting to the board of directors. Also included is a review for conformance to regulatory guidelines, a review of loss history, accuracy of the methodology, and reasonableness of reserves. Ultimately, based on the nature and content of the loan portfolio, the work performed will lead to a determination regarding the soundness of the ACL methodology employed.

Our process includes:

  • Documentation of the ALLL methodology and compliance with Policy Statement*
    • ACL policy and reporting
    • Environmental factors
  • Directional consistency with other credit indicators
  • Reconciliation and re-computation of the ACL
  • Documentation
  • Review of historical charge-off rates
  • Reconcile impairment reserves
  • Projected credit losses to actual losses
  • Reporting of the allowance

*2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses

Benefits

  • Meets regulatory expectations
  • High value proposition
  • Avoids errors in the process
  • Experienced professionals

Download our ACL validation info sheet

How our ACL Validation services have made a difference.

Challenge

A financial institution was looking for an independent review and assessment of the current ACL process to remain in-line with the organization’s policy and procedures, examiner expectations, and industry best practices.

Enlighten Financial Solution

Enlighten Financial’s ALLL validation process independently assessed the organization’s ACL calculations and processes, ensuring compliance with loan policy, industry best practices, and examiner expectations.


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“The staff at Enlighten have been available for questions, in addition to the engaged work that they do. They've been very helpful as a resource beyond the major audit.”
— Meghann Kasper, Chief Credit Officer, Bank First
“Enlighten gives us a very good second set of eyes on our transactions. They're not afraid to challenge us on some of the work that we've done, which is what is needed. I don't need to pay somebody to tell me I'm good, I need to pay somebody to tell me where I've made mistakes.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“Enlighten provided industry best practices that weren’t going to show up in an audit report. They would say, ‘Hey, I noticed you do this. This is really unique, you do a really great job of it.’ And then they might add, ‘Some other clients that I have are doing something like this.’”
— Bill Beardsley, President, Michigan Business Connection
“By questioning some of our methodologies, Enlighten has helped us say, ‘Okay, this is where we need to train staff better and focus on so that they understand what they're doing better.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“The organization of the communication — before, during, and after the reporting process — was certainly better with Enlighten than what I've experienced with a lot of auditors.”
— Bill Beardsley, President, Michigan Business Connection
“The staff at Enlighten have been available for questions, in addition to the engaged work that they do. They've been very helpful as a resource beyond the major audit.”
— Meghann Kasper, Chief Credit Officer, Bank First
“Enlighten gives us a very good second set of eyes on our transactions. They're not afraid to challenge us on some of the work that we've done, which is what is needed. I don't need to pay somebody to tell me I'm good, I need to pay somebody to tell me where I've made mistakes.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“Enlighten provided industry best practices that weren’t going to show up in an audit report. They would say, ‘Hey, I noticed you do this. This is really unique, you do a really great job of it.’ And then they might add, ‘Some other clients that I have are doing something like this.’”
— Bill Beardsley, President, Michigan Business Connection
“By questioning some of our methodologies, Enlighten has helped us say, ‘Okay, this is where we need to train staff better and focus on so that they understand what they're doing better.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“The organization of the communication — before, during, and after the reporting process — was certainly better with Enlighten than what I've experienced with a lot of auditors."
— Bill Beardsley, President, Michigan Business Connection