13. Credit risk is a key risk for most banks, and the way in which credit losses are recognised, measured and presented in the financial statements is important to users of those financial statements. Accounting for credit losses and, in particular, the application of ECL frameworks, is an area of focus for the audit committees of most banks.

14. The ECL estimate requires special consideration from the external auditor. Compared with many other items in the financial statements, the ECL estimate is more susceptible to material misstatement. This is because:

• the estimation process can be complex and involve multiple data, interrelationships and assumptions. Methods and models are often bespoke to individual banks. In addition, the ECL estimate usually requires input from non-accounting experts; and

• ECL involves many management judgments, some of which can be more difficult to objectively evaluate (for example because they involve estimates of future economic conditions) or may be subject to management bias.