8.2 Disclosures

8.2.1 Financial Assets Measured at Amortized Cost

8.2.1.1 Overall Objective and Unit of Account

ASC 326-20

50-2 The disclosure guidance in this Section should enable a user of the financial statements to understand the following:

The credit risk inherent in a portfolio and how management monitors the credit quality of the portfolio
Management’s estimate of expected credit losses
Changes in the estimate of expected credit losses that have taken place during the period.

50-3 For financing receivables, the disclosure guidance in this Subtopic requires an entity to provide information by either portfolio segment or class of financing receivable. Net investment in leases are within the scope of this Subtopic, and the disclosure requirements for financing receivables shall be applied to net investment in leases (including the unguaranteed residual asset). For held-to-maturity debt securities, the disclosure guidance in this Subtopic requires an entity to provide information by major security type. Paragraphs 326-20-55-10 through 55-14 provide implementation guidance about the terms portfolio segment and class of financing receivable. When disclosing information, an entity shall determine, in light of the facts and circumstances, how much detail it must provide to satisfy the disclosure requirements in this Section. An entity must strike a balance between not obscuring important information as a result of too much aggregation and not overburdening financial statements with excessive detail that may not assist a financial statement user in understanding the entity’s financial assets and allowance for credit losses. For example, an entity should not obscure important information by including it with a large amount of insignificant detail. Similarly, an entity should not disclose information that is so aggregated that it obscures important differences between the different types of financial assets and associated risks.

50-3A An entity that makes an accounting policy election to present the accrued interest receivable balance within another statement of financial position line item as described in paragraph 326-20-45-5 shall disclose the amount of accrued interest, net of the allowance for credit losses (if any), and shall disclose in which line item on the statement of financial position that amount is presented.

50-3B As a practical expedient, an entity may exclude the accrued interest receivable balance that is included in the amortized cost basis of financing receivables and held-to-maturity securities for the purposes of the disclosure requirements in paragraphs 326-20-50-4 through 50-22. If an entity applies this practical expedient, it shall disclose the total amount of accrued interest excluded from the disclosed amortized cost basis.

50-3C An entity that makes the accounting policy election in paragraph 326-20-30-5A shall disclose its accounting policy not to measure an allowance for credit losses for accrued interest receivables. The accounting policy shall include information about what time period or periods, at the class of financing receivable or major security-type level, are considered timely.

50-3D An entity that makes the accounting policy election in paragraph 326-20-35-8A shall disclose its accounting policy to write off accrued interest receivables by reversing interest income or recognizing credit loss expense or a combination of both. The entity also shall disclose the amount of accrued interest receivables written off by reversing interest income by portfolio segment or major security type.

ASC Master Glossary

Class of Financing Receivable

A group of financing receivables determined on the basis of both of the following:

Risk characteristics of the financing receivable
An entity’s method for monitoring and assessing credit risk.

See paragraphs 326-20-55-11 through 55-14 and 326-20-50-3.

Financing Receivable

A financing arrangement that has both of the following characteristics:

It represents a contractual right to receive money in either of the following ways
1. On demand
2. On fixed or determinable dates.
It is recognized as an asset in the entity’s statement of financial position.

See paragraphs 310-10-55-13 through 55-15 for more information on the definition of financing receivable, including a list of items that are excluded from the definition (for example, debt securities).

Portfolio Segment

The level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. See paragraphs 326-20-50-3 and 326-20-55-10.

Connecting the Dots

A Debt Security Is Not a Financing Receivable

A debt security initially seems to meet the definition of a financing receivable because the holder of the debt security (i.e., the investor) (1) has a contractual right to receive money either on demand or on fixed or determinable dates and (2) recognizes the debt security as an asset in its balance sheet. However, ASC 310-10-55-13 through 55-15 provide guidance on what should be considered a financing receivable, and ASC 310-10-55-15 states that debt securities within the scope of ASC 320 do not meet the definition of financing receivables. The distinction between the two terms is important because, although many of the disclosure requirements of ASC 326 apply to both financing receivables and debt securities (e.g., those in ASC 326-20-50-5 and ASC 326-20-50-11 through 50-18), some only apply to financing receivables (e.g., the vintage disclosure requirements in ASC 326-20-50-6). As a result, an entity must carefully consider which disclosure requirements apply to which type of financial asset within the scope of ASC 326-20. For a summary of the disclosure requirements by type of financial asset, see the table in Section 8.2.6.

ASC 326-20

Disclosure — Application of the Term Portfolio Segment

55-10 This implementation guidance addresses the meaning of the term portfolio segment. All of the following are examples of portfolio segments:

Type of financing receivable
Industry sector of the borrower
Risk rating.

Disclosure — Application of the Term Class of Financing Receivable

55-11 This implementation guidance addresses application of the term class of financing receivable. An entity should base its principal determination of class of financing receivable by disaggregating to the level that the entity uses when assessing and monitoring the risk and performance of the portfolio for various types of financing receivables. In its assessment, the entity should consider the risk characteristics of the financing receivables.

55-12 In determining the appropriate level of its internal reporting to use as a basis for disclosure, an entity should consider the level of detail needed by a user to understand the risks inherent in the entity’s financing receivables. An entity could further disaggregate its financing receivables portfolio by considering numerous factors. Examples of factors that the entity should consider include any of the following:

Categorization of borrowers, such as any of the following:
1. Commercial loan borrowers
2. Consumer loan borrowers
3. Related party borrowers.
Type of financing receivable, such as any of the following:
1. Mortgage loans
2. Credit card loans
3. Interest-only loans
4. Finance leases.
Industry sector, such as either of the following:
1. Real estate
2. Mining.
Type of collateral, such as any of the following:
1. Residential property
2. Commercial property
3. Government-guaranteed collateral
4. Uncollateralized (unsecured) financing receivables.
Geographic distribution, including both of the following:
1. Domestic
2. International.

55-13 An entity also may consider factors related to concentrations of credit risk as discussed in Section 825-10-55.

55-14 Classes of financing receivables generally are a disaggregation of a portfolio segment. For determining the appropriate classes of financing receivables that are related to a portfolio segment, the portfolio segment is the starting point with further disaggregation in accordance with the guidance in paragraphs 326-20-55-11 through 55-13. The determination of class for financing receivables that are not related to a portfolio segment (because there is no associated allowance) also should be based on the guidance in those paragraphs.

The purpose of the disclosure requirements in ASC 326-20 is to give financial statement users information about the credit risk inherent in an entity’s financial statements and to explain management’s estimate of expected credit losses and the changes in the allowance for such losses. In addition, although a net investment in a lease does not meet the definition of a financing receivable, ASC 326-20-50-13 requires a lessor to consider it as such. Further, an entity must provide disclosure information for HTM debt securities by major security type in a manner similar to how it must provide disclosures under ASC 320-10-50. Because the level of disaggregation for financing receivables differs from that for HTM debt securities, an entity would be required to disclose information for financing receivables separately from information about HTM debt securities.

Although ASC 326 does not define “major security type,” ASC 320-10-50-1B states:

Major security types shall be based on the nature and risks of the security. In determining whether disclosure for a particular security type is necessary and whether it is necessary to further separate a particular security type into greater detail, an entity shall consider all of the following:

(Shared) activity or business sector
Vintage
Geographic concentration
Credit quality
Economic characteristic.

Under this guidance, an entity could identify a major security type on the basis of how it manages, monitors, and measures its securities as well as the security’s nature and risks. For example, major security types could comprise debt securities that are segregated by industry type, company size, or investment objective; debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies; and corporate debt securities, residential mortgage-backed securities, collateralized debt obligations, and other debt obligations.

8.2.2 Credit Quality Information

ASC 326-20

50-4 An entity shall provide information that enables a financial statement user to do both of the following:

Understand how management monitors the credit quality of its financial assets
Assess the quantitative and qualitative risks arising from the credit quality of its financial assets.

50-5 To meet the objectives in paragraph 326-20-50-4, an entity shall provide quantitative and qualitative information by class of financing receivable and major security type about the credit quality of financial assets within the scope of this Subtopic (excluding off-balance-sheet credit exposures and repurchase agreements and securities lending agreements within the scope of Topic 860), including all of the following:

A description of the credit quality indicator(s)
The amortized cost basis, by credit quality indicator
For each credit quality indicator, the date or range of dates in which the information was last updated for that credit quality indicator.

50-6 When disclosing credit quality indicators of financing receivables and net investment in leases (except for reinsurance recoverables and funded or unfunded amounts of line-of-credit arrangements, such as credit cards), a public business entity shall present the amortized cost basis within each credit quality indicator by year of origination (that is, vintage year). For purchased financing receivables and net investment in leases, an entity shall use the initial date of issuance to determine the year of origination, not the date of acquisition. For origination years before the fifth annual period, a public business entity may present the amortized cost basis of financing receivables and net investments in leases in the aggregate. For interim-period disclosures, the current year-to-date originations in the current reporting period are considered to be the current-period originations. A public business entity shall present the gross writeoffs recorded in the current period, on a current year-to-date basis, for financing receivables and net investments in leases by origination year. For origination years before the fifth annual period, a public business entity may present the gross writeoffs in the current period for financing receivables and net investments in leases in the aggregate. The requirement to present the amortized cost basis within each credit quality indicator by year of origination is not required for an entity that is not a public business entity.

50-6A For the purpose of the disclosure requirement in paragraph 326-20-50-6, a public business entity shall present the amortized cost basis of line-of-credit arrangements that are converted to term loans in a separate column (see Example 15 in paragraph 326-20-55-79). A public business entity shall disclose in each reporting period, by class of financing receivable, the amount of line-of-credit arrangements that are converted to term loans in each reporting period and the total of these financing receivables that were written off in the current reporting period in accordance with paragraph 326-20-50-6.

50-7 Except as provided in paragraph 326-20-50-6A, a public business entity shall use the guidance in paragraphs 310-20-35-9 through 35-11 when determining whether a modification, extension, or renewal of a financing receivable should be presented as a current-period origination. A public business entity shall use the guidance in paragraphs 842-10-25-8 through 25-9 when determining whether a lease modification should be presented as a current-period origination.

50-8 If an entity discloses internal risk ratings, then the entity shall provide qualitative information on how those internal risk ratings relate to the likelihood of loss.

50-9 The requirements to disclose credit quality indicators in paragraphs 326-20-50-4 through 50-5 do not apply to receivables measured at the lower of amortized cost basis or fair value, or trade receivables due in one year or less, except for credit card receivables, that result from revenue transactions within the scope of Topic 605 on revenue recognition or Topic 606 on revenue from contracts with customers.

Disclosure — Application of the Term Credit Quality Indicator

55-15 This implementation guidance addresses application of the term credit quality indicator. Examples of credit quality indicators include all of the following:

Consumer credit risk scores
Credit-rating-agency ratings
An entity’s internal credit risk grades
Debt-to-value ratios
Collateral
Collection experience
Other internal metrics.

55-16 An entity should use judgment in determining the appropriate credit quality indicator for each class of financing receivable and major security type. As of the balance sheet date, the entity should use the most current information it has obtained for each credit quality indicator.

The objective of providing credit quality disclosures is to help financial statement users understand how an entity continually monitors the credit quality of a financial asset and to provide insight into the asset’s inherent credit quality.

In accordance with ASC 326-20-50-6, PBEs must provide the amortized cost basis for each of the five years preceding the financial reporting date and to include this information in the aggregate for the period before those five years.

Although it could be onerous for preparers to provide such detailed information, on the basis of feedback provided during the development of the disclosure requirements, the FASB believes that the benefits of providing such information outweigh the costs associated with preparing it. Paragraph BC114 of ASU 2016-13 states, in part:

The Board performed extensive outreach on the disclosure requirements after hosting a roundtable meeting to listen to the perspectives of both preparers and users. Preparers indicated that vintage-year disclosures are more operable than amortized cost basis rollforward disclosures, and users supported the additional information that would be provided by vintage disclosures about credit quality trends. The Board concluded that the vintage disclosure requirements for financing receivables and net investment in leases will allow users to understand the credit quality trends within the portfolio from period to period. In addition, by utilizing information disclosed in other areas in the financial statements and assumptions from public sources, users may be able to derive their own rollforward of the balances and related allowance for credit losses for each origination year. This will provide useful information because it will help users develop estimates of (a) originations by period for each class of financing receivable, (b) an estimate of the initially expected credit losses and subsequent changes to the estimate, and (c) an estimate of the current-period provision that is attributable to originations and changes in expected credit losses on previously originated loans.

Example 15 in ASC 326-20 illustrates how an entity may comply with the vintage disclosure requirements:

ASC 326-20

Example 15: Disclosing Credit Quality Indicators of Financing Receivables by Amortized Cost Basis

55-79 The following Example illustrates the presentation of credit quality disclosures for a financial institution with a narrow range of loan products offered to local customers — both consumer and commercial. Depending on the size and complexity of an entity’s portfolio of financing receivables, the entity may present disclosures that are more or less detailed than the following Example. An entity may choose other methods of determining the class of financing receivable and may determine different credit quality indicators that reflect how credit risk is monitored. Some entities may have more than one credit quality indicator for certain classes of financing receivables.

8.2.2.1 Scope of Vintage Disclosure Requirements

ASC 326-20-50-6 indicates that only PBEs are subject to the vintage disclosure requirements. That is, only PBEs must present the amortized cost basis of financing receivables and net investments in leases “by year of origination (that is, vintage year)” for each credit quality indicator. Paragraph BC114 of ASU 2016-13 discusses the FASB’s rationale for requiring only PBEs to provide such disclosures:

This disclosure requirement is applicable to public business entities only because investors in private companies generally have greater access to management to obtain the information they believe is necessary. The Board considered exempting public business entities that are not SEC filers because small community banks may meet the public business entity definition, but the Board concluded that a distinction among public business entities (that is, public business entities that are not SEC filers) is inappropriate. The Board believes the disclosures are relevant for users in all public business entities; however, given cost considerations, the Board decided to allow public business entities that are not SEC filers further transition relief in order to prepare for the disclosure requirements and decided not to require this disclosure for entities that are not public business entities.

However, all entities must comply with the requirement in ASC 326-20-50-5 to disclose credit quality information by class of financing receivable or by major type of security. Such information would include a description of the credit quality indicators and the amortized cost basis by credit quality indicator.

8.2.2.2 Vintage Disclosures for Revolving Loans That Are Modified Into Term Loans

Under ASC 326-20-50, entities must disclose credit quality information about their financing receivables and net investments in leases that are measured at amortized cost. That is, ASC 326-20-50-6 requires an entity to present the amortized cost basis within each credit quality indicator by year of origination. However, that paragraph exempts “funded or unfunded amounts of line-of-credit arrangements” (e.g., credit cards) from the requirement because the timing of the underwriting decisions related to those arrangements may not be aligned with the borrower’s use of funds. Instead, entities may aggregate such revolving loan balances and report them in a separate single column, without regard to when the initial underwriting decisions were made.

However, ASC 326-20-50-7 requires an entity to apply the guidance in ASC 310-20 to determine whether a loan that is modified should be considered new. If such a loan is considered a new loan, the entity would report it as a current-year origination in the year of the restructuring to comply with the vintage disclosure requirements in ASC 326-20-50-6.

ASC 326-20-50-6A addresses how an entity should apply the vintage disclosure requirements in ASC 326-20-50-6 to a revolving arrangement that is later converted into a term loan. Specifically, ASC 326-20-50-6A states, in part, that an “entity shall present the amortized cost basis of line-of-credit arrangements that are converted to term loans in a separate column (see Example 15 in paragraph 326-20-55-79). An entity shall disclose in each reporting period, by class of financing receivable, the amount of line-of-credit arrangements that are converted to term loans in each reporting period.”

8.2.2.3 Gross Write-Offs and Gross Recoveries

Example 15 in ASC 326-20-55-79 illustrates how an entity could comply with the disclosure requirements for credit quality information in ASC 326-20-50-4 through 50-9. The example includes a vintage disclosure table showing an entity’s presentation of amortized cost information by vintage year for gross write-offs and gross recoveries.

An entity needs to provide gross write-offs and gross recoveries by class of financing receivable and by vintage year to comply with the credit quality disclosure requirements in ASC 326-20-50-4 through 50-9.

As the FASB noted at its April 3, 2019, meeting, Example 15 in ASC 326-20-55-79 illustrates only one way in which an entity could comply with the credit quality disclosure requirements in ASC 326-20-50-4 through 50-9. Because the guidance in those paragraphs does not include a requirement to provide gross write-offs and gross recoveries by class of financing receivable and by vintage year, an entity is not required to provide such information to comply with the credit quality disclosure requirements.

8.2.2.4 Vintage Disclosure Requirements — Trade Receivables and Contract Assets Within the Scope of ASC 605 and ASC 606

ASC 326-20-50-9 states that the “credit quality indicators in paragraphs 326-20-50-4 through 50-5 do not apply to receivables measured at the lower of amortized cost basis or fair value, or trade receivables due in one year or less, except for credit card receivables, that result from revenue transactions within the scope of Topic 605 on revenue recognition or Topic 606 on revenue from contracts with customers.” Thus, while ASC 326-20-50-9 is clear on the applicability of the vintage disclosure requirements and trade receivables due in one year or less, it is less clear with respect to contract assets.

ASC 606 states that an entity should apply the CECL model to contract assets, but the term “contract asset” is not used in ASC 326-20. While ASC 606-10-45-3 clearly notes that contract assets are subject to the measurement guidance in ASC 326 and that a credit loss of a contract asset “shall be measured, presented, and disclosed in accordance with Subtopic 326-20,” questions have arisen about which disclosure requirements apply to such assets. Some believe that ASC 606 indicates that a contract asset is a financial asset measured at amortized cost that is within the scope of ASC 326-20 for subsequent measurement and disclosure purposes, even though this is not explicitly stated in ASC 326-20.2 Others believe that a contract asset does not meet the definition of a financial asset3 measured at amortized cost because the entity does not have the unconditional right to receive cash until the contract asset becomes a trade receivable (i.e., when it has the right to collect the consideration from the customer).

Connecting the Dots

Contract Assets

Contract assets may not be converted to receivables and subsequently collected for more than one year. Consequently, if considered to be within the scope of ASC 326-20, such assets may not qualify for the short-term exception for certain disclosures that is described in ASC 326-20-50-9. On the basis of discussions held with the FASB staff, we believe that contract assets do not meet the definition of a financing receivable and are therefore outside the scope of the vintage disclosure requirements in ASC 326-20-50-4 and 50-5. However, once the contract asset is converted to a trade receivable, the entity would need to include that converted trade receivable in its vintage disclosures if it is not due in one year or less.

8.2.3 Allowance for Credit Losses

ASC 326-20

50-10 An entity shall provide information that enables a financial statement user to do the following:

Understand management’s method for developing its allowance for credit losses
Understand the information that management used in developing its current estimate of expected credit losses
Understand the circumstances that caused changes to the allowance for credit losses, thereby affecting the related credit loss expense (or reversal) reported for the period.

50-11 To meet the objectives in paragraph 326-20-50-10, an entity shall disclose all of the following by portfolio segment and major security type:

A description of how expected loss estimates are developed
A description of the entity’s accounting policies and methodology to estimate the allowance for credit losses, as well as a discussion of the factors that influenced management’s current estimate of expected credit losses, including:
1. Past events
2. Current conditions
3. Reasonable and supportable forecasts about the future.
A discussion of risk characteristics relevant to each portfolio segment
A discussion of the changes in the factors that influenced management’s current estimate of expected credit losses and the reasons for those changes (for example, changes in portfolio composition, underwriting practices, and significant events or conditions that affect the current estimate but were not contemplated or relevant during a previous period)
Identification of changes to the entity’s accounting policies, changes to the methodology from the prior period, its rationale for those changes, and the quantitative effect of those changes
Reasons for significant changes in the amount of writeoffs, if applicable
A discussion of the reversion method applied for periods beyond the reasonable and supportable forecast period
The amount of any significant purchases of financial assets during each reporting period
The amount of any significant sales of financial assets or reclassifications of loans held for sale during each reporting period.

50-12 Paragraph 326-20-45-3 explains that a creditor that measures expected credit losses based on a discounted cash flow method is permitted to report the entire change in present value as credit loss expense (or reversal of credit loss expense) but also may report the change in present value attributable to the passage of time as interest income. Creditors that choose the latter alternative shall disclose the amount recorded to interest income that represents the change in present value attributable to the passage of time.

Rollforward of the Allowance for Credit Losses

50-13 Furthermore, to enable a financial statement user to understand the activity in the allowance for credit losses for each period, an entity shall separately provide by portfolio segment and major security type the quantitative disclosures of the activity in the allowance for credit losses for financial assets within the scope of this Subtopic, including all of the following:

The beginning balance in the allowance for credit losses
Current-period provision for expected credit losses
The initial allowance for credit losses recognized on financial assets accounted for as purchased financial assets with credit deterioration (including beneficial interests that meet the criteria in paragraph 325-40-30-1A), if applicable
Writeoffs charged against the allowance
Recoveries collected
The ending balance in the allowance for credit losses.

Pending Content (Transition Guidance: ASC 220-40-65-1)

The beginning balance in the allowance for credit losses
Current-period provision for expected credit losses
The initial allowance for credit losses recognized on financial assets accounted for as purchased financial assets with credit deterioration (including beneficial interests that meet the criteria in paragraph 325-40-30-1A), if applicable
Writeoffs charged against the allowance
Recoveries collected
The ending balance in the allowance for credit losses.

See paragraphs 220-40-50-21 through 50-25 for additional disclosure requirements.

In general, the objective of the disclosure requirements in ASC 326-20-50-10 through 50-12 is to help financial statement users understand the information and methods that management uses in determining the estimate of expected credit losses. In addition, the disclosures should be presented in sufficient detail for financial statement users to understand the factors or conditions that led to any changes in the allowance for credit losses from the prior period.

8.2.4 Past-Due and Nonaccrual Status

ASC 326-20

Past Due Status

50-14 To enable a financial statement user to understand the extent of financial assets that are past due, an entity shall provide an aging analysis of the amortized cost basis for financial assets that are past due as of the reporting date, disaggregated by class of financing receivable and major security type. An entity also shall disclose when it considers a financial asset to be past due.

50-15 The requirements to disclose past-due status in paragraph 326-20-50-14 do not apply to receivables measured at the lower of amortized cost basis or fair value, or trade receivables due in one year or less, except for credit card receivables, that result from revenue transactions within the scope of Topic 605 on revenue recognition or Topic 606 on revenue from contracts with customers.

Example 16: Disclosing Past-Due Status

55-80 The following table illustrates certain of the disclosures in paragraph 326-20-50-14 by class of financing receivable.

Nonaccrual Status

50-16 To enable a financial statement user to understand the credit risk and interest income recognized on financial assets on nonaccrual status, an entity shall disclose all of the following, disaggregated by class of financing receivable and major security type:

The amortized cost basis of financial assets on nonaccrual status as of the beginning of the reporting period and the end of the reporting period
The amount of interest income recognized during the period on nonaccrual financial assets
The amortized cost basis of financial assets that are 90 days or more past due, but are not on nonaccrual status as of the reporting date
The amortized cost basis of financial assets on nonaccrual status for which there is no related allowance for credit losses as of the reporting date.

50-17 An entity’s summary of significant accounting policies for financial assets within the scope of this Subtopic shall include all of the following:

Nonaccrual policies, including the policies for discontinuing accrual of interest, recording payments received on nonaccrual assets (including the cost recovery method, cash basis method, or some combination of those methods), and resuming accrual of interest, if applicable
The policy for determining past-due or delinquency status
The policy for recognizing writeoffs within the allowance for credit losses.

50-18 The requirements to disclose nonaccrual status in paragraphs 326-20-50-16 through 50-17 do not apply to receivables measured at lower of amortized cost basis or fair value, or trade receivables due in one year or less, except for credit card receivables, that result from revenue transactions within the scope of Topic 605 on revenue recognition or Topic 606 on revenue from contracts with customers.

ASC 326-20 requires an entity to provide information about financial assets that are past due or for which the entity is no longer accruing interest (the disclosure requirements do not apply to the assets described in ASC 326-20-50-15 and ASC 326-20-50-18). Below is a summary of the disclosure requirements for financial assets on nonaccrual status under ASC 326.

ASC 326-20-50-17
Accounting policies related to: Placing an asset on nonaccrual status. Recording payments for assets on nonaccrual status. Resuming interest accrual. Assessing past-due or delinquency status. Recognizing write-offs within the allowance for credit losses.

ASC 326-20-50-16
As of each balance sheet date, the entity must present: The amortized cost basis of any financial assets on nonaccrual status The amortized cost basis of any financial assets that are past due 90 days or more and are still accruing. The interest income recognized on nonaccrual financial assets during the period. The amortized cost basis of any financial assets on nonaccrual status and for which there is no related credit loss allowance.

ASC 326-20-50-16

As of each balance sheet date, the entity must present:

The amortized cost basis of any financial assets on nonaccrual status
The amortized cost basis of any financial assets that are past due 90 days or more and are still accruing.
The interest income recognized on nonaccrual financial assets during the period.
The amortized cost basis of any financial assets on nonaccrual status and for which there is no related credit loss allowance.

8.2.5 Other Disclosures

ASC 326-20

Purchased Financial Assets With Credit Deterioration

50-19 To the extent an entity acquired purchased financial assets with credit deterioration during the current reporting period, an entity shall provide a reconciliation of the difference between the purchase price of the financial assets and the par value of the assets, including:

The purchase price
The allowance for credit losses at the acquisition date based on the acquirer’s assessment
The discount (or premium) attributable to other factors
The par value.

8.2.5.1 PCD Assets

If, during the financial reporting period, an entity acquires a PCD asset (and therefore applies the gross-up approach to that asset), it must disclose a reconciliation between the PCD asset’s purchase price and its par value. Such a reconciliation will enable financial statement users to understand how much of the purchase price discount is related to expected credit losses or other factors (discounts or premiums). The reconciliation should include the items listed in ASC 326-20-50-19(a)–(d) above.

Note that entities are only required to provide this reconciliation in the financial reporting period in which the PCD asset is acquired. It does not need to be disclosed in subsequent periods.

ASC 326-20

Collateral-Dependent Financial Assets

50-20 For a financial asset for which the repayment (on the basis of an entity’s assessment as of the reporting date) is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty, an entity shall describe the type of collateral by class of financing receivable and major security type. The entity also shall qualitatively describe, by class of financing receivable and major security type, the extent to which collateral secures its collateral-dependent financial assets, and significant changes in the extent to which collateral secures its collateral-dependent financial assets, whether because of a general deterioration or some other reason.

8.2.5.2 Collateral-Dependent Financial Assets

Under ASC 326-20-50-20, if an asset is determined to be collateral-dependent and the borrower is experiencing financial difficulty (as described in Section 4.4.9.1), the entity must “describe the type of collateral by class of financing receivable and major security type. The entity also shall qualitatively describe, by class of financing receivable and major security type, the extent to which collateral secures its collateral-dependent financial assets, and significant changes in the extent to which collateral secures its collateral-dependent financial assets, whether because of a general deterioration or some other reason.”

ASC 326-20

Off-Balance-Sheet Credit Exposures

50-21 In addition to disclosures required by other Topics, an entity shall disclose a description of the accounting policies and methodology the entity used to estimate its liability for off-balance-sheet credit exposures and related charges for those credit exposures. Such a description shall identify the factors that influenced management’s judgment (for example, historical losses, existing economic conditions, and reasonable and supportable forecasts) and a discussion of risk elements relevant to particular categories of financial instruments.

50-22 Off-balance-sheet credit exposures refers to credit exposures on off-balance-sheet loan commitments, standby letters of credit, financial guarantees not accounted for as insurance, and other similar instruments, except for instruments within the scope of Topic 815.

8.2.5.3 Off-Balance-Sheet Credit Exposures

An entity must disclose its accounting policy and method for estimating expected credit losses on off-balance-sheet credit exposures. ASC 326-20-50-21 states, in part, that “[s]uch a description shall identify the factors that influenced management’s judgment (for example, historical losses, existing economic conditions, and reasonable and supportable forecasts) and a discussion of risk elements relevant to particular categories of financial instruments.”

8.2.6 Summary of ASC 326-20 Disclosure Requirements by Asset Type

			Financing Receivables	Net Investment in Leases	Off-Balance- Sheet Exposures	HTM Debt Securities
			Disaggregated by Portfolio Segment or Class of Financing Receivable			Disaggregated by Major Security Type
Disclosure Category	ASC Reference	Roadmap Reference	Disclosure Required?
Credit quality information	326-20-50-4 and 50-5 and 326-20-50-8	8.2.2	Yes(a), (b)	Yes	No	Yes
Credit quality information — vintage disclosures	326-20-50-6 and 50-7	8.2.2	Yes(b), (c)	Yes	No	No
Allowance for credit losses	326-20-50-10 through 50-12	8.2.3	Yes	Yes	Yes	Yes
Rollforward of the allowance for credit losses	326-20-50-13	8.2.3	Yes	Yes	Yes	Yes
Past-due status	326-20-50-14	8.2.4	Yes(b)	Yes	Yes	Yes
Nonaccrual status	326-20-50-16 and 50-17	8.2.4	Yes(b)	Yes	Yes	Yes
PCD financial assets	326-20-50-19	8.2.5.1	Yes	Yes	Yes	Yes
Collateral-dependent financial assets	326-20-50-20	8.2.5.2	Yes	Yes	Yes	Yes
Off-balance-sheet exposures	326-20-50-21 and 50-22	8.2.5.3	No	No	Yes	No
(a) This disclosure requirement does not apply to repurchase agreements and securities lending agreements within the scope of ASC 860. (b) As indicated in ASC 326-20-50-9, ASC 326-20-50-15, and ASC 326-20-50-18, these disclosure requirements “do not apply to receivables measured at the lower of amortized cost basis or fair value, or trade receivables due in one year or less, except for credit card receivables, that result from revenue transactions within the scope of Topic 605 on revenue recognition or Topic 606 on revenue from contracts with customers.” (c) On the basis of discussions with the FASB staff, we believe that contract assets do not meet the definition of a financing receivable and are therefore outside the scope of the vintage disclosure requirements in ASC 326-20-50-4 and 50-5.

8.2.7 AFS Debt Securities

ASC 326-30

General

50-1 For instruments within the scope of this Subtopic, this Section provides the following disclosure guidance related to credit risk and the measurement of credit losses:

Available-for-sale debt securities in unrealized loss positions without an allowance for credit losses
Allowance for credit losses
Purchased financial assets with credit deterioration.

50-2 The disclosure guidance in this Section should enable a user of the financial statements to understand the following:

The credit risk inherent in available-for-sale debt securities
Management’s estimate of credit losses
Changes in the estimate of credit losses that have taken place during the period.

50-3 An entity shall determine, in light of the facts and circumstances, how much detail it must provide to satisfy the disclosure requirements in this Section and how it disaggregates information into major security types. An entity must strike a balance between obscuring important information as a result of too much aggregation and overburdening financial statements with excessive detail that may not assist a financial statement user to understand an entity’s securities and allowance for credit losses. For example, an entity should not obscure important information by including it with a large amount of insignificant detail. Similarly, an entity should not disclose information that is so aggregated that it obscures important differences between the different types of financial assets and associated risks.

50-3A An entity that makes the accounting policy election to present separately the accrued interest receivable balance within another statement of financial position line item as described in paragraph 326-30-45-1 shall disclose the amount of applicable accrued interest, net of the allowance for credit losses (if any), and shall disclose in which line item on the statement of financial position that amount is presented.

50-3B If for the purposes of identifying and measuring an impairment the applicable accrued interest is excluded from both the fair value and the amortized cost basis of the available-for-sale debt security, an entity may, as a practical expedient, exclude the applicable accrued interest that is included in the amortized cost basis for the purposes of the disclosure requirements in paragraphs 326-30-50-4 through 50-10. If an entity elects this practical expedient, it shall disclose the total amount of accrued interest, net of the allowance for credit losses (if any), excluded from the disclosed amortized cost basis.

50-3C An entity that makes the accounting policy election in paragraph 326-30-30-1B shall disclose its accounting policy not to measure an allowance for credit losses for accrued interest receivables. The accounting policy shall include information about what time period or periods, at the major security-type level, are considered timely.

50-3D An entity that makes the accounting policy election in paragraph 326-30-35-13A shall disclose its accounting policy to write off accrued interest receivables by reversing interest income or recognizing credit loss expense or a combination of both. The entity also shall disclose the amount of accrued interest receivables written off by reversing interest income by major security type.

Available-for-Sale Debt Securities in Unrealized Loss Positions Without an Allowance for Credit Losses

50-4 For available-for-sale debt securities, including those that fall within the scope of Subtopic 325-40 on beneficial interests in securitized financial assets, in an unrealized loss position for which an allowance for credit losses has not been recorded, an entity shall disclose all of the following in its interim and annual financial statements:

As of each date for which a statement of financial position is presented, quantitative information, aggregated by category of investment — each major security type that the entity discloses in accordance with this Subtopic — in tabular form:
1. The aggregate related fair value of investments with unrealized losses
2. The aggregate amount of unrealized losses (that is, the amount by which amortized cost basis exceeds fair value).
As of the date of the most recent statement of financial position, additional information (in narrative form) that provides sufficient information to allow a financial statement user to understand the quantitative disclosures and the information that the entity considered (both positive and negative) in reaching the conclusion that an allowance for credit losses is unnecessary. The disclosures required may be aggregated by investment categories, but individually significant unrealized losses generally shall not be aggregated. This disclosure could include all of the following:
1. The nature of the investment(s)
2. The cause(s) of the impairment(s)
3. The number of investment positions that are in an unrealized loss position
4. The severity of the impairment(s)
5. Other evidence considered by the investor in reaching its conclusion that an allowance for credit losses is not necessary, including, for example, any of the following:
  1. Performance indicators of the underlying assets in the security, including any of the following:
    
    01. Default rates
    
    02. Delinquency rates
    
    03. Percentage of nonperforming assets.
  2. Debt-to-collateral-value ratios
  3. Third-party guarantees
  4. Current levels of subordination
  5. Vintage
  6. Geographic concentration
  7. Industry analyst reports
  8. Credit ratings
  9. Volatility of the security’s fair value
  10. Interest rate changes since purchase
  11. Any other information that the investor considers relevant.

50-5 The disclosures in (a)(1) through (a)(2) in paragraph 326-30-50-4 shall be disaggregated by those investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or longer.

50-6 The reference point for determining how long an investment has been in a continuous unrealized loss position is the balance sheet date of the reporting period in which the impairment is identified. For entities that do not prepare interim financial information, the reference point is the annual balance sheet date of the period during which the impairment was identified. The continuous unrealized loss position ceases upon the investor becoming aware of a recovery of fair value up to (or beyond) the amortized cost basis of the investment during the period.

Allowance for Credit Losses

50-7 For interim and annual periods in which an allowance for credit losses of an available-for-sale debt security is recorded, an entity shall disclose by major security type, the methodology and significant inputs used to measure the amount related to credit loss, including its accounting policy for recognizing writeoffs of uncollectible available-for-sale debt securities. Examples of significant inputs include, but are not limited to, all of the following:

Performance indicators of the underlying assets in the security, including all of the following:
1. Default rates
2. Delinquency rates
3. Percentage of nonperforming assets
Debt-to-collateral-value ratios
Third-party guarantees
Current levels of subordination
Vintage
Geographic concentration
Industry analyst reports and forecasts
Credit ratings
Other market data that are relevant to the collectibility of the security.

50-8 Paragraph 326-30-45-3 explains that an entity may report the change in the allowance for credit losses due to changes in time value as credit loss expense (or reversal of credit loss expense) but also may report the change as interest income. An entity that chooses the latter alternative shall disclose the amount recorded to interest income that represents the change in present value attributable to the passage of time.

Rollforward of the Allowance for Credit Losses

50-9 For each interim and annual reporting period presented, an entity shall disclose by major security type, a tabular rollforward of the allowance for credit losses, which shall include, at a minimum, all of the following:

The beginning balance of the allowance for credit losses on available-for-sale debt securities held by the entity at the beginning of the period
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded
Additions to the allowance for credit losses arising from purchases of available-for-sale debt securities accounted for as purchased financial assets with credit deterioration (including beneficial interests that meet the criteria in paragraph 325-40-30-1A)
Reductions for securities sold during the period (realized)
Reductions in the allowance for credit losses because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis
If the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, additional increases or decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period
Writeoffs charged against the allowance
Recoveries of amounts previously written off
The ending balance of the allowance for credit losses related to debt securities held by the entity at the end of the period.

Pending Content (Transition Guidance: ASC 220-40-65-1)

The beginning balance of the allowance for credit losses on available-for-sale debt securities held by the entity at the beginning of the period
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded
Additions to the allowance for credit losses arising from purchases of available-for-sale debt securities accounted for as purchased financial assets with credit deterioration (including beneficial interests that meet the criteria in paragraph 325-40-30-1A)
Reductions for securities sold during the period (realized)
Reductions in the allowance for credit losses because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis
If the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, additional increases or decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period
Writeoffs charged against the allowance
Recoveries of amounts previously written off
The ending balance of the allowance for credit losses related to debt securities held by the entity at the end of the period.

See paragraphs 220-40-50-21 through 50-25 for additional disclosure requirements.

Purchased Financial Assets With Credit Deterioration

50-10 To the extent an entity acquired purchased financial assets with credit deterioration during the current reporting period, an entity shall provide a reconciliation of the difference between the purchase price of the assets and the par value of the available-for-sale debt securities, including:

The purchase price
The allowance for credit losses at the acquisition date based on the acquirer’s assessment
The discount (or premium) attributable to other factors
The par value.

Like the disclosure requirements for financial assets measured at amortized cost, the disclosure requirements for AFS debt securities were designed to help financial statement users understand the credit quality of AFS debt securities and how management estimates expected credit losses. Below is a summary of the disclosure requirements for AFS debt securities in ASC 326.

ASC 326-30-50
Unit of Account
An entity is required to provide disclosure information for HTM debt securities by “major security type,” which is based on the nature and risks of the security.
AFS Debt Securities in an Unrealized Loss Position Without an Allowance for Credit Losses
As of each date for which a balance sheet is presented, entities must provide, in tabular format and aggregated by category of investment, quantitative information about: The aggregate related fair value of investments with unrealized losses. The aggregate amount of unrealized losses (i.e., the amount by which the amortized cost basis exceeds fair value). Entities must provide sufficient qualitative information “to allow a financial statement user to understand the quantitative disclosures and the information that the entity considered (both positive and negative) in reaching the conclusion that an allowance for credit losses is unnecessary” (emphasis added). These disclosures are disaggregated by (1) investments that have been in a continuous unrealized loss position for fewer than 12 months and (2) investments that have been in a continuous unrealized loss position for 12 months or longer. The reference point for determining how long an investment has been in a continuous unrealized loss position is the reporting date of the period in which the impairment is identified. For entities that do not prepare interim financial information, the reference point is the reporting date of the annual period during which the impairment was identified. The unrealized loss position ceases when the investor becomes aware of a recovery of fair value that is up to or more than the security’s amortized cost basis.
Allowance for Credit Losses
For interim and annual periods in which there is an allowance for credit losses, the entity must disclose the method and inputs used to measure expected credit losses, including its accounting policy for recognizing the write-offs of uncollectible AFS debt securities.
Rollforward of the Allowance for Credit Losses
For each interim and annual reporting period presented, an entity discloses by major security type a tabular rollforward of the allowance for credit losses as follows: The beginning balance of the allowance for credit losses: Additions related to (1) increases in expected credit losses for situations in which the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis and (2) the acquisition of AFS debt securities accounted for as PCD assets (including BIs that meet the criteria in ASC 325-40-30-1A). Decreases related to (1) reductions in expected credit losses for situations in which the entity does not intend to sell the security and it is not more likely than not that it will be required to sell the security before recovery of the amortized cost basis, (2) reductions for securities sold during the period (realized), and (3) reductions attributable to the entity’s intent to sell the security or its belief that it is more likely than not that it will be required to sell the security before recovery of the amortized cost basis. Write-offs charged against the allowance. Recoveries of amounts previously written off. The ending balance of the allowance for credit losses.
PCD Assets
If, during the financial reporting period, an entity acquires AFS PCD assets, it must disclose a reconciliation between the PCD asset’s purchase price and par value that includes the following: The purchase price. The allowance for credit losses as of the acquisition date. The discount (or premium) attributable to other factors. The par value.

8.2.7.1 Changes in the Present Value of Expected Cash Flows

A change in the present value of expected future cash flows can result from the passage of time, changes in the timing and amount of the cash flows the entity expects to receive, or both. ASC 326-30-45-3 allows an entity to present the change in the present value of expected future cash flows as an adjustment to credit loss expense (both favorable and unfavorable) or as interest income (only if the change is related to the passage of time). In accordance with ASC 326-30-50-8, if the entity chooses to present the change as interest income, it is required to disclose that policy decision as well as “the amount recorded to interest income that represents the change in present value attributable to the passage of time.”

Footnotes

See ASC 326-20-15-2.

The ASC master glossary defines a financial asset as “[c]ash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to do either of the following:

Receive cash or another financial instrument from a second entity
Exchange other financial instruments on potentially favorable terms with the second entity.”

Confidential and Proprietary — for Use Solely by Authorized Personnel

This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.