Auditors vs. Examiners: Mixed Interest
Examiners and auditors have two inherently different agendas, and the underlying interests of these two parties often leave financial institutions in a difficult position. On one side, examiners mandate that reserve levels be an accurate reflection of economic and portfolio conditions, often erring on the side of caution. On the other side, auditors often encourage those actions that are of most benefit to shareholders.
Any provision to the ALLL inversely affects profits. Conversely, financial institutions can release reserves directly to income, which affects both profits and dividend value. Thus, with shareholder interest in mind, auditors tend to side with actions that boost shareholder value, whereas examiners’ main concern surrounds the overall safety and soundness of the ALLL.
Related Asset - Whitepaper:
Documenting the ALLL: What Examiners Expect
Documenting the ALLL: What Examiners Expect - Download the PDF