What Bank CFOs Are Missing From Their Finance Team
By Paul Karr
There is a common misconception that accounting policy is something that controllers can do in their spare time.
Midsize firms especially can fall into the same trap: We’ve always had a small team, and everyone has to complete a lot of work, and we can’t afford another resource.
Your controller already has a day job, supervising routine accounting activities, closing the books, keeping the internal and external reports moving forward, and, hopefully, improving the accounting, closing and reporting processes.
Instead of an ad-hoc approach to accounting policy and technical accounting matters, which can be costly in terms of missed deadlines, increased audit fees, etc., bank CFOs should consider adding an accounting policy resource to the finance team.
Following are five responsibilities that a new accounting policy resource can utilize to help fill the missing piece on your team:
- Manage New Transactions
For example, you may want to modify employee compensation programs, change categories or move investments within categories in your investment portfolio, enter into a new type of lending transaction or vacate a building that you own or lease. The accounting ramifications of these transactions need to be understood up front, before decisions are made, and the execution needs to be carefully managed across the functions of the bank.
- Maintain Accounting Policies
Boards, regulators and outside auditors expect accounting policies to be documented and kept current. The updating process needs to include subject matter experts at the bank and needs to be managed in order to be done efficiently.
- Implement New Accounting Guidance
An accounting policy resource would play a major role when a rule maker comes along with new rules that you must adopt. The biggest recent change is obviously in how you reserve for loans (i.e., Current Expected Credit Losses or CECL). Other examples include the change from LIBOR to SOFR and how to treat cloud computing costs. Implementation of standards is a process requiring research, networking, planning, communication and execution.
- Assure Ongoing Adequacy of Documentation
Some accounting policies are particularly onerous in their ongoing documentation requirements, and CECL is a perfect example. Maintaining that documentation can mean as much as 100 pages of documentation every year (every quarter if you’re a publicly traded company). Your accounting policy resource could help assure the appropriateness and adequacy of the documentation of the allowance for credit losses under CECL. The new team member could bring in all the people needed and drive the process—and before you know it, there will be new guidance sooner or later that will also have to be adopted.
- Assist in Preparing Financial Statements
The significant accounting policies note to the financial statements—which seems to grow every year—is an obvious one for the accounting policy resource to own. This note is also an example of a part of the financial statements that can be completed prior to year end, and it can be used as a control to make sure all of the bank’s accounting policies are well documented (see “Maintain Accounting Policies” above). Because of their accounting expertise, accounting policy resources are also in a good position to provide quality assurance and quality.
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An accounting policy resource can significantly strengthen a bank’s finance team by bringing focus to accounting policy/technical accounting tasks and enabling you to easily answer questions from your audit committee, outside auditors as well as regulators. As a bonus, an accounting policy resource could fit into your succession plan as they become a candidate for your next controller or chief accounting officer.
Bank CFOs should fill the hole in their Finance Department before overwhelming workloads—not to mention climbing consultant bills—bury them.
(Paul Karr, CPA/MAS, is a director at CFO Consulting Partners with more than 30 years of senior leadership experience in accounting, finance and controllership as a Big 4 audit partner and controller and consultant for banks and financial services firms of various sizes. He has expertise in the various aspects of accounting policy as well as improving closing processes, internal controls, restructuring and external financial reporting – GAAP and SEC.)