PHOENIX The best way for credit unions to avoid running afoul of examiners when it comes to their allowance for loan and lease losses is to document, document and then document some more.
That was the message from Bart Ferrin, CPA, Ferrin & Company, LLC, Salt Lake City. Ferrin told attendees of the CUNA CFO Council conference here the ALLL estimate should be based on comprehensive, well-documented and consistently applied analysis of the loan portfolio. He added the estimate should take into account all available information existing as of the financial statement date, including environmental factors such as industry, geographical, economic and political factors.
“Management is responsible for developing the process,” Ferrin said Monday. “This means having an effective loan classification or credit grading system that can identify, monitor and address asset quality problems in an accurate and timely manner. One of the most important things to do is to evaluate loss estimation models before they are employed. The validation of ALLL methodology does not have to be done by one person, it can be divided among independent parties.”
Look for more coverage of the CUNA CFO Council conference in the print edition of Credit Union Journal.
