Financial Accounting Manual for Federal Reserve Banks, January 2017 - Accessible Version
Example of calculation of liability balance
In 20X2, District Z anticipates that substantially all run-out claims relating to 20X1 will be paid by June 30, 20X2. The calculation of the estimated liability balance for the 4 quarters of 20X2 would be made as follows:
Actual liability at 12/31/X1 equals Claims paid in X1 that relate to X0 divided by Total claims paid in X0 multiplied by Claims paid Jan X1-Dec X1
Liability estimate at 3/31/X2 equals Ratio calculated for 12/31/X1 multiplied by Claims paid Apr X1-Mar X2 (from equation above)
Liability estimate at 6/30/X2 equals Claims paid in X2 that relate to X1* divided by Total claims paid in X1multipled by Claims paid Jul X1-Jun X2
Liability estimate at 9/30/X2 equals Ratio calculated for 6/30/X2 multiplied by Claims paid Oct X1-Sep X2 (from equation above)
Actual liability at 12/31/X2 equals Ratio calculated for 6/30/X2 multiplied by Claims paid Jan X2-Dec X2 (from equation above)
* If complete run-out claim information is not available until later in the year, Districts should continue using the previously calculated ratio until complete information is available.
Application of Statements 5 and 114 to a Loan Portfolio
Application of FASB ASC Topic 450-20, formerly SFAS No. 5 and FASB ASC Topic 310-10; formerly SFAS No. 114 to a Loan Portfolio, Topic No. D-80.
All loans consider Box A, which says is the loan within the scope of Statement 114, paragraph 6? If yes, move to Box B. If no, move to Box E.
Box B, Has the loan been identified for evaluation (Statement 114, paragraph 6, 7, and footnote 1.)? If yes, move to Box C. If no, move to Box E.
Box C, Is it probable the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement (Statement 114, paragraph 9-10)? If yes, move to Box G. If no, move to Box D.
Box D, Are there specific characteristics of the loan indicating that it is probable that there would be an incurred loss in a group of loans with those characteristics. If yes, move to Box E. If no, move to Box F.
Box E, The need for an allowance should be determined under Statement 5 (or possibly other literature, e.g. Statement 115).
Box F, No allowance is recorded under any GAAP.
Box G, Measure impairment under Statement 114, paragraph 12-16. Record only a Statement 114 allowance.
Framework for considering the consolidation of special purpose entities
Consolidation Analysis in Subtopic 810-10
There are five boxes in a column. The first box says, “Is the entity being evaluated for consolidation a legal entity? (810-10-15-4)”; if the answer is “NO,” go to the “Stop consolidation analysis” (with a reference to footnote 1) box and you are finished. If the answer is “YES,” go to the second box.
The second box says, “Does a scope exception from the consolidation guidance apply? (810-10-15-12)”; if the answer is “YES,” go to “Stop consolidation analysis” (with a reference to footnote 1) and you are done. If the answer is “NO,” go to the third box in the column.
The third box says, “Does a Variable Interest Entities (VIE) Subsection scope exception apply? (810-10-15-17)”; if you answer “YES,” go to the “Evaluation under Voting Interest Model” box and you are done. If the answer is “NO,” go to the fourth box in the column.
The fourth box says, “Does the reporting entity have a variable interest in the legal entity? (810-10-55-16 through 55-41)”; if the answer is “NO,” go to the “Stop consolidation analysis” (with a reference to footnote 1) box and you are done. If the answer is “YES,” go to the fifth box in the column.
The fifth box says, “Is the legal entity a VIE? (810-10-15-14)” (with a reference to footnote 2); if the answer is “YES,” go to the “Evaluations under Variable Interest Model” and you are done. If “NO,” go to the “Evaluation under Voting Interest Model” box and you are done.
Footnote 1: Consolidation not required; however, evaluation of other generally accepted accounting principles (GAAP) may be relevant to determine recognition, measurement, or disclosure.
Footnote 2: A legal entity is a VIE if any of the following conditions exist:
a. The equity investment at risk is not sufficient to finance the activities of the entity without additional subordinated financial support provided by any parties.
b. As a group, the holders of the equity investment at risk lack any of the following characteristics of a controlling financial interest:
- The power to direct the activities that most significantly impact the entity’s economic performance:
i. For legal entities other than limited partnerships, investors lack that power through voting rights or similar rights if no owners hold voting rights or similar rights (such as those of a common shareholder in a corporation).
ii. For limited partnerships, partners lack that power if neither (01) nor (02) below exists:
01. A simple majority or lower threshold of limited partners (including a single limited partner) with equity at risk is able to exercise substantive kick-out rights through voting interests over the general partner(s)
02. Limited partners with equity at risk are able to exercise substantive participating rights over the general partner(s).
2. The obligation to absorb expected losses.
3. The right to receive expected residual returns.
c. The equity investors' voting rights are not proportional to the economics, and substantially all of the activities of the entity either involve or are conducted on behalf of an investor that has disproportionately few voting rights.
Two-rate approach
Total budgeted employee salary and ROB divided by Total employee AWH hours, and/or
Total budgeted annual OAH costs divided by Total annual budgeted OAH hours
Blended-rate approach
Total budgeted employee salary and ROB plus Total budgeted annual OAH costs divided by Total employee AWH hours plus Total budgeted OAH hours