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Update on Accounting for Loan and Lease Losses

04-01 / March 2004
Update on Accounting for Loan and Lease Losses


To distribute an interagency advisory that addresses recent developments in accounting for loan and lease losses (ALLL) and provides an update on the status of the proposed Statement of Position, “Accounting for Credit Losses” (SOP), issued by the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA). Because an assessment of the appropriateness of the allowance for loan and lease losses (ALLL) is critical to the safety and soundness of a credit union, this issuance also provides a listing of the existing allowance guidance that credit unions should continue to apply.


Enclosed Joint Interagency Advisory.


The National Credit Union Administration is joining the other four federal financial institution regulatory agencies (the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision) in issuing this advisory providing an update of accounting for loan and lease losses.

Credit unions 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 credit union’s stated policies and procedures, and relevant supervisory guidance. To fulfill this responsibility, credit unions 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. Consistent with longstanding supervisory guidance, credit unions must maintain an ALLL at a level that is appropriate to absorb estimated credit losses inherent in the loan and lease portfolio.


This advisory reinforces guidance currently in effect.


This bulletin will expire when superseded.


Leonard Skiles
Executive Director 


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