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Use case #0002

Automated provisioning calculations: accuracy and audit trail

A provisioning calculation that is correct but undocumented is not auditable. A provisioning calculation that is documented but not traceable to the source data is not defensible. The Provisioning AI computes the required provision for every NPL / charge-off account — following Fed / OCC supervisory classification for regulatory reporting and ASC 326 (CECL) for the allowance for credit losses — and generates a full audit trail linking every provision figure to the classification, the outstanding balance, the security value, and the DPD count that determined it.

The two provisioning frameworks — and why both must be computed

US banks are subject to two parallel provisioning requirements that produce different provision amounts and serve different purposes. Supervisory asset classification under Fed / OCC guidance categorizes criticized and charged-off exposures and informs reporting — while the allowance for credit losses under ASC 326 (CECL) reflects lifetime expected credit losses, not fixed percentage schedules by sub-category. The accounting provision, computed under ASC 326 CECL methodology, is the provision required for financial reporting purposes — based on the probability of default (PD), exposure at default (EAD), and loss given default (LGD) for each account.

The two amounts frequently differ. Where a supervisory-specific allowance floor exceeds the CECL allowance, the institution must use the higher regulatory amount. Where the CECL allowance exceeds any supervisory floor (as it often does for assets with significant credit deterioration not yet charged off), the CECL amount drives the reported figure. The Provisioning AI computes both simultaneously, flags the higher amount as the required provision, and documents the reason for the differential.

"Two provisioning frameworks. Two different amounts. One has to win. The Provisioning AI computes both, identifies which is higher, and records why — for every account, every quarter."

Provision calculations: three accounts worked through in full

Provision Calculation Workings — Nov 14, 2025 Quarter-End
Three accounts · Full OCC loan classification standards + ASC 326 CECL calculation shown · Audit-ready
Total provision — these 3 accounts
$76,01,000
Incremental over prior quarter
+$24,06,640

The audit trail: every provision change is traceable to its cause

Provision Audit Trail — LA-2024-4821 · Rajan Textiles · Full history
All classification changes and provision updates · Immutable log
May 5, 2025
00:01:14
SYSTEM
Account originated: Standard. Provision set at $11,360 (0.40% general provision on $28.4L outstanding). Classification: Standard. DPD: 0. HASH: a4f2e98bc1d3 · Data source: LOS-2024-4821 at origination
Aug 14, 2025
00:02:08
SYSTEM
First overdue date recorded. DPD count commenced. Account: Standard. monthly payment due Aug 5, 2025 not received by Aug 14, 2025 (grace period expired). 90-day watch timer started. Collection team alerted. HASH: c8a1f3d92b44 · Source: CBS payment register Aug 14, 2025
Sep 28, 2025
09:14:22
COLL TEAM
75-day watch alert responded to: Field visit conducted. Borrower confirms temporary cash flow difficulty from delayed receivables. PTP (Promise to Pay) for Oct 10. Account remains Standard. Provision: $11,360. HASH: e9d5a12f4b88 · Agent: R. Subramaniam · Call log ref: CL-2025-48821
Oct 10, 2025
00:02:11
SYSTEM
PTP not honoured. DPD: 57 days. 85-day watch alert sent to collection team. Account: Standard (DPD <90). HASH: b3c8e74a1f02 · CBS: no credit received by PTP date
Nov 14, 2025
00:04:22
SYSTEM
DPD crossed 90-day threshold (DPD: 91). Account reclassified Standard → Sub-Standard. Provision recalculated: 15% of $28.4L outstanding = $4,26,000. Change: +$4,14,640. CBS updated. Collection team notified. Regulatory reporting flag set. HASH: f7a2d3c09e14 · Rule applied: PR-SUBST-001 · Outstanding: $28,40,000 verified from CBS
● Immutable log · Every entry timestamped and hashed · Cannot be modified retroactively · Auditor export available on request
BothFed / OCC classification inputs and ASC 326 CECL computed for every NPL / charge-off account — higher amount applied
FullAudit trail for every provision change — source data, rule applied, timestamp, hash · Immutable
$76LCombined provision for 3 accounts — each computed from actual outstanding, security value, and DPD
ZeroManual intervention in the calculation chain — every figure traceable to CBS source data and OCC loan classification standards rule

The calculation that cannot be audited will be challenged — and the challenge will succeed

A provisioning figure that an auditor or regulator cannot trace to its source data — which account, which outstanding balance, which security value, which OCC loan classification standards rate, computed on which date — is a figure that can be challenged regardless of whether it is mathematically correct. The correctness of the number is not the same as the defensibility of the calculation. The Provisioning AI generates a calculation that is not only correct — it is traceable at every step to the source data that drove it, timestamped to the second, and immutably logged so that the audit question "how did you arrive at this provision amount?" has a complete, verifiable answer for every account in the portfolio.

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