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Abstract
Loan loss allowances or loan loss reserves, as they are sometime referred to, are a critical part of many registrants' financial statements. They are particularly important to the financial statements of lenders, but many other registrants have significant accounts and notes receivable portfolios. Unfortunately, determining the amount of "bad" loans in these portfolios is not an exact science. It is an estimation process performed by the registrant. As with any estimation process, knowledge of the methodology employed is necessary to understand the development of the estimate. The Securities and Exchange Commission (SEC) Staff has observed that explanations offered by some registrants have indicated a lack of reasoned analysis or discipline in the establishment of the loan loss allowance. Some registrants have been unable to provide supporting documentation and other registrants have provided documentation that conflicted with the registrants' described methodology. In light of this lack of discipline noted by the Staff on the part of certain registrants in the establishment and documentation of loan loss allowances, on July 6, 2001, the SEC issued Staff Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues. This article focuses on the documentation requirements of SAB No. 102.