| Summary: | 碩士 === 中原大學 === 會計研究所 === 91 === Banks accept and manage significant amounts of credit risk. Loans usually are the most significant assets of banks and generate the largest portion of revenues. Loans have traditionally been the source of most credit losses incurred by banks.
Accounting for loan losses is an area of significant interest for different assessors - such as bank managers, external auditors, and banking supervisors. The methods that banks use to account for loan losses in their loan portfolios are of great importance for the presentation of banks’ financial positions in their financial statements.
Divergent loan losses accounting present substantial deterrents to reaching international harmonisation of standards for evaluating the quality of bank assets. Financial market globalization requires existing accounting for loan losses and disclosure standards for banks to improve and become more internationally comparable. Various international bodies, including the Basel Committee, have called for progress in accounting and disclosure practices for banks’ loan-loss accounting treatments specifically, can also significantly affect the accuracy of financial and supervisory reporting and related capital calculations. Improvements in the transparency of the banking system require a uniform framework that provides timely identification, recognition, and disclosure of problem loans.
Banks need loan classification and loan review systems in order to monitor and manage the credit risk in their loan portfolios. These classifications are always used for regulatory reporting to facilitate regulators’ assessments of the level of credit risk in banks’ loan portfolios, and also used to quantify provisioning requirements.
Determining an allowance for loan losses involves a significant degree of management judgment and is inevitably an imprecise process. Allowance for loan losses developed without a disciplined methodology or adequate documentation can undermine the credibility of a bank’s financial statements. This study suggest that the banks should not apply the regulatory standard percentages to the aggregate for each classification category to calculate their provisions. They should review each loan individually and assess the loss, and then apply the appropriate percentages to the remaining portion of those loans on which they are unable to assess the likely loss reliably. For recognition and measurement purposes, the regulator reporting requirements applicable to allowance for loan losses should conform to GAAP. The board of directors of each bank is responsible for ensuring that the banks have controls in place to consistently determine the allowance for loan losses. The conclusions about the appropriate amount of the loan loss allowance should be well documented. To fulfill this responsibility, board of directors should instruct management to develop and maintain an appropriate, systematic, and consistently applied process to determine the amounts of the allowance for loan losses and provisions for loan losses.
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