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#1341212 - 02/10/10 06:45 PM Allowance under or over
Data Offline
100 Club
Data
Joined: Oct 2002
Posts: 226
Houston
Do you have a rule of thumb for a tolerance level of ALLL that is underfunded or overfunded? An example is: The calculation is well documented but comes the required reserves are 1.5% more than the reserve account balance.
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#1345538 - 02/18/10 06:58 PM Re: Allowance under or over Data
DerrickAuditor Offline
Member
Joined: Mar 2008
Posts: 91
USA
Are you referring to allocated vs. unallocated? If you alllowance is well documented, there theoretically should be no unallocated allowance. But realistically, everyone has some.

Generally, external auditors don't want to see unallocated reserves (because you can manipulate your earnings through the allowance), but examiners love unallocated amounts (good to be conservative for safety & soundness purposes). Need more info to give a good response.

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#1346399 - 02/19/10 07:52 PM Re: Allowance under or over DerrickAuditor
Data Offline
100 Club
Data
Joined: Oct 2002
Posts: 226
Houston
Thank you for responding. Example: At month end the GL balance is 15% less than the ALLL calculated reserve reguirement. Is there a % of surplus or deficit that the auditor would pass on? Would the circumstance change if the bank was expecting a large recovery in the next month?
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#1346722 - 02/20/10 06:08 PM Re: Allowance under or over Data
ropingbanker Offline
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Joined: May 2006
Posts: 140
Out West
I know the state and federal regulators told us they did NOT mind a discrepancy as long as at end of year it was funded properly, they really don't wanna see alot of transactions happening in that account, especially none going out. But then again our auditors have been called Hitler in the past too.

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#1347086 - 02/22/10 06:33 PM Re: Allowance under or over ropingbanker
Auditjg Offline
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Auditjg
Joined: Sep 2004
Posts: 67
I know for us, if it is underfunded, we've been told by the regulators that the allowance needs to be funded (regardless of amount)by the next call report date. We do the calculation quarterly, so we generally have 3 months to fund it. If it's overfunded, regulators don't care, however external auditors usually only look at your balance sheet date of the audit. So, we usually wait till they come for the audit and if they tell us to reduce the reserve, we wait until they tell us to. Usually, they care about materiality and usually pass on adjustments if it's not material.

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