Current Audit and Accounting Issues

Current Audit and AccountingIssuesThe Federal Reserve Bank of BostonRegional & Community BankersConference - June 3, 2002Robert Costa(617) 973-3827The GAAP Hierarchy• FASB - Statements of Financial Accounting Standards (Level A)• AcSEC - Statements of Position (Level B)•E IT F - C o n sen su s (Level C)Allowance for Loan and Lease Losses:The Saga Continues…..• New Accounting Standards ExecutiveCommittee (AcSEC) Statements of Position(SOP) to be finalized in July 2002• Objective: Provide additional guidance onaccounting for, documentation of anddisclosures relating to the ALLL that resultsin improvement in practiceAllowance for Loan and Lease Losses(Continued)• Primary basis: SFAS 5 and 114• Scope: All creditors• Emphasis: Incurred loss is probable andestimableAcSEC Conclusions• The allowance should consist only of (a) acomponent for individual loan impairment(SFAS 114) and (b) components forcollective loan impairment (SFAS 5)Example: Individually impaired (SFAS 114) $ 50 Collective Impairment (SFAS 5): Commercial 404 Consumer 211 Other components (SFAS 5) Consumer bankruptcy 32 Industry exposure 56 ...