Subsequent to the initial impairment measurement, if there is a significant change (increase or decrease) in the amount or timing of an impaired loan's expected future cash flows, or if actual cash flows are significantly different from the cash flows previously projected, a creditor should recalculate the impairment by applying the procedures described above and by adjusting the ALLL (see ARM 3560.3). Similarly, a creditor that measures impairment based on the observable market price of an impaired loan or the fair value of the collateral of an impaired collateral-dependent loan should adjust the ALLL if there is a significant change (increase or decrease) in either of those bases. However, the net carrying amount of the loan should at no time exceed the recorded investment in the loan (see definition of recorded investment in loan at ARM 3560.132).

Although ASC 310-10 does not specify the frequency of evaluation for amounts and timing, we suggest at least a quarterly evaluation to coincide with quarterly reporting periods. When performing the review, the creditor should evaluate whether the actual amount and timing of cash flows received from the borrower are consistent with the creditor’s previous expectations. The review should take into account any information, events, or other developments as of the reporting date that may affect the creditor’s previous estimate of impairment. Subsequent events affecting the realization of assets, such as loan receivables, should be recognized in the financial statements when those events represent the culmination of conditions that existed over a relatively long period of time (see ASC 855-10-55-1, Subsequent Events).