What is FAS 5?

April 29, 2013
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FAS 5 refers to the original FASB pronouncement FAS 5, Accounting for Contingencies, which is included in the FASB Accounting Standards Codification (ASC) subtopic 450-20, Contingencies: Loss Contingencies.  FAS 5 is the primary, authoritative accounting document concerning the accrual of an Allowance for Loan and Lease Losses (ALLL), setting forth the general principles for accruing all types of losses — insurance, litigation, loan, etc.  Furthermore, in contrast to FAS 114, which considers loans individually determined to be impaired, FAS 5’s contribution to the ALLL includes the component for loans that have not been individually identified as being impaired (i.e. loans performing in accordance with contractual terms).  In accordance with FAS 5, when measuring estimated credit losses, these loans are grouped into homogenous pools, or groups of loans with similar risk characteristics, and evaluated collectively considering both quantitative (historical losses) and qualitative (environmental adjustment) measures, in order to determine appropriate reserve levels.

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ALLL.com - Latest news and best practices

About the Author


Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest real-time database of private-company financial information in the United States. The company was acquired in 2018 and is now part of Abrigo.

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