Jul 19 2011

The Allowance for Loan Losses: Critical Issues for Credit Union Leaders


The Allowance for Loan Losses: Critical Issues for Credit Union Leaders illuminates the ground on which credit unions calculate their particular allowance. Respected CPA and industry veteran Michael Sacher unpacks the various accounting standards at play and matches them with the expectations of CFOs and credit union examiners alike.


Today’s financial landscape is littered with the bones of banks and credit unions alike done in by bad loans. But credit losses are a story as old as banking itself: Financial institutions suffer, and some collapse, when borrowers cannot (or will not) repay their loans. Regulations and accounting standards are enacted with the best intent to control and measure credit losses. But marketplace volatility exhibited by devaluation of collateral and negative earnings has focused increased scrutiny of the ALL. Add to the mix complex accounting requirements heretofore not applicable to most credit unions and the result has been confusion, disagreement, and contention over the ALL.

The report breaks down into four parts:

  • An introduction to the current ALL trends among US credit unions.
  • An examination of the relevant accounting standards and interpretations, including credit union–specific guidance around FASB and NCUA requirements.
  • A model ALL approach for credit unions, with specific guidance and suggestions for qualitative and environmental (Q&E) factors.
  • Common ALL mistakes, a Great Recession post- mortem that identifies specific areas for review for those involved in day-to- day management or long- term supervision of the allowance.
Report Number 243