The Allowance For Loan Losses

The following table illustrates the effect on reported net income of $24,611 in 1994 would be affected by an allowance for loan losses:

25-7 If a loss cannot be accrued in the period when ti is probable that an asset had been impaired or a liability had been incurred because the amount of loss cannot be reasonable estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments.”

The acts of accounting and finance date back to the beginnings of recorded history and has evolved over the centuries to become a cornerstone of societies across the globe. Both the Old and New Testament of the Bible discuss the subject of accounting and finance in many scriptures and parables. The biblical concepts taught about accounting and finance are, without fail, applicable to modern business. Without an ethical foundation build upon a biblical foundation accounting and finance practices are bound to fail. This paper will tie biblical concepts to accounting and finance as well highlight the implications of a secularism.

“Recognition of an impairment loss and the recognition of a gain on the extinguishment of debt are separate events, and each event should be recognized in the period in which it occurs. The Board believes that the recognition of an impairment loss should be based on the measurement of the asset at its fair value and that the existence of nonrecourse debt should not influence that measurement.” (Statement 144, paragraph B34)

Section 360-10-35-17 of the Code states that an impairment loss shall be recognized if the carrying value of a fixed asset is not recoverable and exceeds its fair value. The carrying value of the fixed asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and disposal of the asset. An impairment loss shall be measured by the amount by which the carrying value exceeds the fair value.

ASC 320-10-35-33F: “Changes in the quality of the credit enhancement should be considered when estimating whether a credit loss exists and the period over which the debt security is expected to recover.”

Impairment Loss is the difference between book value and the recoverable cost (the higher of the asset’s value-in-use and fair value less costs

To address the risk associated with business account kiting schemes, credit unions should perform a risk assessment by evaluating the business member’s creditworthiness before approving a checking account. The idea is to offer checking accounts to business members who are least likely to abuse the account, which could result in large losses to the credit

There were several developing countries, who owed certain amount of money to the U.S. Government, and they were having a difficult time to meet their obligations. According to Sanford (1993), in 1990, the President Bush proposed debts to be forgiven through the Enterprise for the Americas Initiative (EAI), and the U.S. Government forgave $605.3 million dollars in Latin American foreign aid debt through the EAI legislation that passed in 1990and 1992. The bad debts of Brazil and Argentina were written off; however, debt forgiveness action affected the small reserved banks significantly compare to bigger reserved banks in the United States. Therefore, this paper addressed about whether the debt write off had impact on the bank earnings or future bank earnings, and if so what effect would be expected on the bank’s stock price.

According to the Japanese Accounting Standards for Financial Instruments, the Companies provide an allowance based on the past loan loss experience for a certain reference period in general.

A significant portion of those overdue bad loans will cause the rapid rise in the Non-Performing Loans (NPL) ratio for financial institutions, resulting in a serious erosion of profit, and causing a chain reaction of bankruptcy and escalated financial crisis. The century-old Lehman Brothers declared bankruptcy in 2008 which caused a domino effect, not only hitting the U.S. economy, but also triggering a global financial tsunami. Such disaster may be explained by the fact that banks recently owns excessive amount of poor credits which may be the result of highly competitive banking environment and reckless credit imprudence, even reaching an alarming level in bank 's NPL ratios. In order to correct this problem, the banking industry must make prudent and cautious decisions in the beginning of loan auditing process and also recognize the dynamic fact that credit status is not static. It shifts greatly throughout the life span of the loan credit. The change is more dramatic especially in the case of past due or non-performing loans. Only when banking institutions are fully aware of the dynamic nature of credit status can the banking institutions avoid making the same mistake again.

INDUSTRY FEEDBACK AND RESPONSE Critics of the US banking institutions have strongly criticised and blamed fair value accounting for aggravating the credit crisis, forcing the institutions to heavily slash the value of their mortgage assets, which resulted in weakening the regulatory capital ratios. The need to mark to market the financial instruments forced many financial institutions to incur large writedowns on the balance sheets. Without the regulatory cash cushion, inter-bank and customer lending became severly hampered, thus creating a stagnant credit market. It is easy to make accounting rules the scapegoat when it comes to shifting blames. The reality is that had financial institutions adopted fair value accounting and its disclosure requirements early, they would have seen the writing on the wall.

Credit risk indicates a decline in the credit assets’ values before default that arises from the deterioration in a financial institution’s portfolio quality. Credit risk can also represent the volatility the loss in the credit asset’s value and the loss in the current and future earnings from the credit (Perez, 2014). To prepare and accommodate inevitable losses stemming from our business credit card Jeanne D’Arc has budgeted for a loan loss reserve to help protect the financial integrity and assets of the credit union.

Table 4.3 shows the trend of non-performing loans ratio by the bank in general for

Credit risk is the possibility that the actual return on an investment or loan extended will deviate from that, which was expected (Conford, 2000). Coyle (2000) defines credit risk as losses from the refusal or inability of credit customers to pay what is owed in full and on time. The main sources of credit risk include, limited institutional capacity, inappropriate credit policies, volatile interest rates, poor management, inappropriate laws, low capital and liquidity levels, directed lending, massive licensing of banks, poor loan underwriting, reckless lending, poor credit assessment., no non-executive directors, poor loan underwriting, laxity in credit assessment, poor lending practices, government interference and inadequate supervision by the central bank. To minimize these risks, it is necessary for the