AICPA Committee Decides Against Loss Recognition and Measurement Guidance for the ALLL

WASHINGTON-NCUA and the other federal financial institution regulators last week issued joint guidance regarding calculation for allowance for loan and lease losses. The Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants decided its Statement of Position concerning additional loss recognition and measurement guidance for the ALLL following the public comment period, according to the new guidance. Instead, the AcSEC will proceed with guidance to enhance disclosures and incorporate recommendations from the recent comment process. AcSEC will release the suggested disclosure improvements at its April 2004 meeting. The committee also requested that its recommendations to the Financial Accounting Standards Board, “Accounting for Contingencies,” be reconsidered. Credit unions and other financial institutions should continue to weigh their ALLL based on existing guidance within Generally Accepted Accounting Principles and the appropriate agency’s guidance. “Financial institutions are reminded of their responsibility for ensuring that controls are in place to consistently determine the ALLL in accordance with Generally Accepted Accounting Principles (GAAP), the institution’s stated policies and procedures, and relevant supervisory guidance. To fulfill this responsibility, financial institutions should develop, maintain, and document a comprehensive, systematic, and consistently applied process to determine the amounts of the ALLL and provisions for loan and lease losses” according to the guidance. It continued, “Accordingly, prudent, conservative, but not excessive, loan loss allowances that represent management’s best estimate from within an acceptable range of estimated losses are appropriate.” The federal financial institutions regulatory agencies plan to issue supplemental guidance. Until then, NCUA’s current guidance on the matter is in Interpretative Ruling and Policy Statement 02-3, “Allowance for Loan and Lease Losses Methodologies and Documentation for Federally Insured Credit Unions” from May 2002.