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Filene outlines model CU warns of ALL errors
MADISON, Wis. (7/25/11--A new report, “The Allowance for Loan Losses: Critical Issues for Credit Union Leaders,” helps credit unions get a handle on a calculation that has become increasingly elusive amid regulatory and economic turbulence, said the Filene Research Institute. As credit unions face unpredictable delinquencies, lingering high unemployment, frightening charge offs and strategic defaults, Michael Sacher, a certified public accountant and industry veteran, describes the various accounting standards and matches them with the changing expectations of chief financial officers and credit union examiners. “We have been hearing, with increasing regularity, requests from Filene members for guidance with the complex judgments required to properly manage the allowance for loan losses (ALL),” said Mark Meyer, Filene Research Institute CEO. “This report will help.” Regulations and accounting standards are designed to control and measure credit losses. However marketplace volatility created by collateral devaluation and negative earnings has brought increased scrutiny to ALL. Add to the mix complex accounting requirements previously not applicable to most credit unions, and the result is confusion, disagreement and contention. The research “combines the theory, reporting requirements, financial market information needs, and common sense into a clear picture of how credit union loan valuation reporting should be handled,” writes Dr. Harold Sollenberger, a professor emeritus of accounting at Michigan State University, in his foreword for the report. The report breaks down into four parts:
* An introduction to the current ALL trends among U.S. credit unions; * An examination of the relevant accounting standards and interpretations, including credit union-specific guidance around Financial Accounting Standards Board and National Credit Union Administration requirements; * A model ALL approach for credit unions, with specific guidance and suggestions for qualitative and environmental factors; and * Common ALL mistakes and 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.
Credit unions and other interested parties can register for a free half-hour video discussion of the report on Thursday at 1 p.m. (ET). For details on the report and to sign up for the video, use the link.
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