ASC 450-20 (FAS 5) loans are deemed as “performing” loans, and are pooled as opposed to being examined individually. Various measures of loss can be used to determine the expected loss from ASC 450-20 (FAS 5) pools. Institutions who are diligent about segmenting these pools can gather insight into the performance of each pool.
Before accounting for expected credit losses, institutions must first determine which loans belong in FAS 5 (ASC 450-20) status and which belong in FAS 114 (ASC 310-10) status. It is important that institutions are consistent with how they classify their loans, as inconsistency can drastically change the end ALLL figure and draw scrutiny from regulators.