Typically at the start of every New Year, we spend time thinking about the prior year and all the interesting and exciting events that have happened. 2009 was certainly a banner year for accounting standard setting. As I was thinking back over all that happened and trying to determine what was the most surprising thing for accounting during the year,  my answer comes out to be Loan Loss Accounting.

As many of you may have already been aware, it turns out loan loss accounting is anchored firmly in the language of SFAS 5 (ASU 450). As the project update for Credit Quality and the Allowance for Credit Losses points out “Losses are not recognized before it is probable that they have been incurred (referred to as an incurred model), even though it may be probable based on past experience that losses will be incurred in the future.”  I hope 2010 developments move us away from an incurred model and closer to an expected model.