Chapter 8 — Presentation and Disclosure
Chapter 8 — Presentation and Disclosure
8.1 Presentation
ASC 320-10
45-9 Subsequent increases or decreases
in the fair value of available-for-sale securities that do not
result in recognition or reversal of an allowance for credit
loss or write-down in accordance with Subtopic 326-30 on
measuring credit losses on available-for-sale debt securities
shall be included in other comprehensive income pursuant to
paragraphs 320-10-35-1(b) and 320-10-45-8.
ASC 326-20
45-1 For financial assets measured at
amortized cost within the scope of this Subtopic, an entity
shall separately present on the statement of financial position,
the allowance for credit losses that is deducted from the
asset’s amortized cost basis.
45-2 For off-balance-sheet credit
exposures within the scope of this Subtopic, an entity shall
present the estimate of expected credit losses on the statement
of financial position as a liability. The liability for credit
losses for off-balance-sheet financial instruments shall be
reduced in the period in which the off-balance-sheet financial
instruments expire, result in the recognition of a financial
asset, or are otherwise settled. An estimate of expected credit
losses on a financial instrument with off-balance-sheet risk
shall be recorded separate from the allowance for credit losses
related to a recognized financial instrument.
45-5 An entity may make an accounting
policy election, at the class of financing receivable or major
security-type level, to present separately on the statement of
financial position or within another statement of financial
position line item the accrued interest receivable balance, net
of the allowance for credit losses (if any). An entity that
presents the accrued interest receivable balance, net of the
allowance for credit losses (if any), within another statement
of financial position line item shall apply the disclosure
requirements in paragraph 326-20-50-3A.
ASC 326-30
45-1 An entity shall present
available-for-sale debt securities on the statement of financial
position at fair value. In addition, an entity shall present
parenthetically the amortized cost basis and the allowance for
credit losses. 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 present
separately on the statement of financial position or within
another statement of financial position line item the accrued
interest receivable balance, net of the allowance for credit
losses (if any). An entity that presents the accrued interest
receivable balance, net of the allowance for credit losses (if
any), within another statement of financial position line item
shall apply the disclosure requirements in paragraph
326-30-50-3A.
45-2 An entity shall separately
present, in the financial statement in which the components of
accumulated other comprehensive income are reported, amounts
reported therein related to available-for-sale debt securities
for which an allowance for credit losses has been recorded.
Like the current presentation requirements in U.S. GAAP, the presentation requirements in
ASU 2016-13 vary on the basis of the
type of financial asset. For example, in the statement of financial position, an
entity’s presentation of loans and other debt instruments measured at amortized cost and
their corresponding allowances for expected credit losses would differ from its
presentation of AFS debt securities and the corresponding allowances for such
losses.
The table below summarizes the
presentation requirements of ASU 2016-13.
|
Statement of Financial
Position
| |||
|---|---|---|---|
|
Asset Type
|
Asset Balance
|
Allowance for Expected Credit Losses
|
Income Statement
|
|
Financial assets measured at amortized cost, including:
|
Presented at amortized cost.
|
Presented separately from the asset’s amortized cost balance.
|
Expected credit losses presented as a credit loss expense.
|
|
Loan commitments and other off-balance-sheet instruments
|
N/A, since these are unrecognized financial instruments.
|
Presented as a liability. Liabilities cannot be included with
other allowances for expected credit losses.
|
Expected credit losses presented as a credit loss expense.1
|
|
AFS debt securities
|
Presented at fair value. Entities must also include the
security’s amortized cost parenthetically. Changes in fair value
unrelated to credit are presented in OCI.
|
Presented parenthetically.
|
Expected credit losses presented as a credit loss expense.
|
8.1.1 Other Presentation Considerations
8.1.1.1 Changes in the Present Value of Expected Cash Flows
Changes in the present value of expected future cash flows may result from the
passage of time or from changes in the timing and amount of the cash flows the
entity expects to receive. Like existing U.S. GAAP, ASC 326 allows an entity
that uses a DCF approach to present a 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). An entity that chooses to present the change as interest income must,
in accordance with ASC 326-20-50-12 and ASC 326-30-50-8, disclose that policy
decision as well as the amount recorded in interest income that represents the
change in present value attributable to the passage of time.
8.1.1.2 Changes in the Fair Value of the Collateral Securing a Collateral-Dependent Financial Asset
Like existing U.S. GAAP, ASC 326 requires an entity to present changes (both
favorable and unfavorable) in the fair value of the collateral securing a
collateral-dependent financial asset as an adjustment to credit loss
expense.
8.1.1.3 Accrued Interest
ASU 2016-13 defines “amortized cost basis” as “the amount at
which a financing receivable or investment is originated or acquired, adjusted
for applicable accrued interest, accretion or
amortization of premium, discount, and net deferred fees or costs, collection of
cash, writeoffs, foreign exchange, and fair value hedge accounting adjustments”
(emphasis added). As discussed in Section
4.4.5.1, the ASU’s inclusion of accrued interest in the
definition has three significant implications for financial statements with
respect to the measurement, presentation, and disclosure of the amortized cost
basis and the allowance for credit losses of financial assets:
- When measuring an allowance for credit losses on the amortized cost basis of the assets, entities will be required to include an allowance for the accrued interest that applies to those assets.
- Entities will have to present the accrued interest amount in the amortized cost basis of the financial assets in the same line item on the balance sheet.
- Accrued interest must be included in the disclosures of the amortized cost basis by class of financing receivable and vintage, as required by ASC 326-20-50-5 and 50-6, respectively.
After a discussion of these implications at the June 2018 TRG meeting, the FASB issued ASU 2019-04, which
amends the presentation and disclosure requirements of ASC 326 related to
accrued interest. Specifically, the ASU states that an entity would be
permitted to do the following:
- “Make an accounting policy election to present accrued interest receivable balances and the related allowance for credit losses for those accrued interest receivable balances separately from the associated financial assets on the balance sheet. If the accrued interest receivable balances and the related allowance for credit losses [are presented separately from the associated financial assets but] are not presented as a separate line item on the balance sheet, an entity should disclose the amount of accrued interest receivable balances and the related allowance for credit losses and where the balance is presented.”
- “Elect a practical expedient to disclose separately the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements.”
- “Make an accounting policy election to write off accrued interest amounts by reversing interest income or recognizing credit loss expense, or a combination of both.”
For more information about the recognition and measurement
changes related to accrued interest, see Section
4.4.5.1.
Footnotes
1
In May 2020, the Federal Reserve System,
the FDIC, the National Credit Union Administration, and
the OCC issued a final interagency policy statement
on allowances for credit losses. The proposal on which
the final statement was based stated that “[p]rovisions
for credit losses on off-balance-sheet credit exposures
are included as part of ‘Other noninterest expense’ in
Schedule RI — Income Statement in the Call
Report and in ‘Credit Loss Expense — Off-Balance-Sheet
Credit Exposures’ in the Statement of Income and
Expense in NCUA Call Report Form 5300.” However,
the final statement eliminates any reference to the
income statement category in which amounts needed to
adjust the liability for expected credit losses for
off-balance-sheet credit exposures should be reported in
the agencies’ regulatory reports. See Section
10.3.2 for more information.
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
- On demand
- 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:
- Commercial loan borrowers
- Consumer loan borrowers
- Related party borrowers.
- Type of financing receivable,
such as any of the following:
- Mortgage loans
- Credit card loans
- Interest-only loans
- Finance leases.
- Industry sector, such as either
of the following:
- Real estate
- Mining.
- Type of collateral, such as any
of the following:
- Residential property
- Commercial property
- Government-guaranteed collateral
- Uncollateralized (unsecured) financing receivables.
- Geographic distribution,
including both of the following:
- Domestic
- 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. Many of these
disclosure requirements, as well as the unit of account at which the disclosures
should be presented, are consistent with the requirements in existing U.S. GAAP.
That is, like the requirements of ASC 310-10-50, the disclosure requirements of
ASC 326-20 for financing receivables measured at amortized cost are applicable
at either the portfolio segment level or by class of financing receivable,
depending on the specific disclosure required. 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 ASU 2016-13 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.
Changing Lanes
FASB ASU on Troubled Debt
Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02,
which requires new disclosures for receivables whose contractual cash
flows have been modified because borrowers are experiencing financial
difficulties. Modifications in the contractual cash flows of a
receivable are defined as principal forgiveness, interest rate
reductions, other-than-insignificant-payment delays, or term extensions
under ASC 310-10-50-39. Under the ASU, a term extension excludes
covenant waivers and modifications of contingent acceleration clauses.
Furthermore, the Board indicated that “collateral substitutions, or the
addition of a guarantor, will not be captured in the disclosure
enhancements.”2
For receivables whose contractual cash flows have been modified, ASU
2022-02 requires entities to disclose, by class of financing receivable,
the types of modifications, the financial effects of those
modifications, and the performance of these modified receivables
(through a 12-month trailing period after the modification).
The ASU also requires entities to disclose receivables involving (1) a
payment default during the current period and (2) modifications to the
contractual cash flows within the 12 months before the default. The
disclosures must show, by class of financing receivable, the type of
contractual change that the modification provided and the defaulted
amount.
Under ASU 2022-02, a delay in payment that is considered insignificant
does not need to be included in the disclosures stated above; however,
if the receivable has been previously restructured, an entity should
consider all restructurings within the past 12 months in determining the
insignificance of the delay in payment.
Importantly, the enhanced disclosures required by the ASU may differ from
an entity’s historical TDR disclosures because the scope of the new
disclosure requirements does not depend on whether the entity has
provided a concession to a borrower experiencing financial difficulty.
Instead, an entity will need to evaluate whether a modification or
restructuring with a borrower experiencing financial difficulty results
in principal forgiveness, an interest rate reduction, an
other-than-insignificant-payment delay, or a term extension. These
disclosures are required regardless of whether the refinancing or
restructuring is accounted for as a new loan under ASC 310-20-35-9
through 35-11. As a result, an entity may need to update its internal
controls and processes to comply with the new requirements.
For more information about the ASU’s effective date and transition
requirements, see Section
10.2.1.8.
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), an 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, an 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. 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.
Pending Content (Transition Guidance: ASC
326-10-65-5)
50-6When 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, 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.
Pending Content (Transition Guidance: ASC
326-10-65-5)
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, an entity shall use the guidance in
paragraphs 310-20-35-9 through 35-12 when determining
whether a modification, extension, or renewal of a financing
receivable should be presented as a current-period
origination. An 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.
Pending Content (Transition Guidance: ASC
326-10-65-5)
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.
Many of the requirements in ASC 326-20 to provide credit quality information about
an entity’s financing receivables are similar to those in existing U.S. GAAP. For
example, ASC 310-10-50-27 through 50-30 require an entity to provide quantitative
and qualitative information about the credit quality of its financing
receivables.
Although there are similarities between the amendments in ASU 2016-13 and existing
U.S. GAAP, the requirement in ASC 326-20-50-6 for a PBE to “present the amortized
cost basis within each credit quality indicator by year of origination (that is,
vintage year)” is a significant addition. That paragraph also requires entities to
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. As noted in Section
8.2.2.3, ASU 2022-02 revised Example 15 to make it more consistent
with the requirements in ASC 326-20-50-4 through 50-9. Below is Example 15, as
revised by ASU 2022-02.
ASC 326-20
Pending Content (Transition
Guidance: ASC 326-10-65-5)
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.
Note that for the initial year of adoption, ASC 326 provides
transition guidance on the vintage disclosure requirements in ASC
326-20-50-6. This guidance can be summarized as follows:
- PBEs that meet the U.S. GAAP definition of an SEC filer3 must disclose credit quality indicators disaggregated by year of origination for a five-year period.
- PBEs that do not meet the U.S. GAAP definition of an SEC filer must disclose credit quality indicators disaggregated by year of origination. However, upon adopting the ASU, those PBEs would only be required to disclose such information for the previous three years and would present an additional year of information until they have provided disclosures for the previous five years.
- Other entities are not required to disclose credit quality indicators disaggregated by year of origination.
See Chapter 9 for more information about transition.
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.
ASU 2019-04 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.4 Specifically, this ASU adds ASC 326-20-50-6A, which 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.
Changing Lanes
FASB ASU on Troubled Debt Restructurings and Vintage
Disclosures
In March 2022, the FASB issued ASU
2022-02, which amends ASC 326-20-50-6 to require
that a PBE’s vintage disclosures include gross write-offs recorded
in the current period, on a year-to-date basis, by year of
origination. The amendments related to the presentation of gross
write-offs in the vintage disclosures should be applied
prospectively from the date of adoption. For more information about
the ASU’s effective date and transition, see Section
10.2.1.8.
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 326-20.5 Others believe that a contract asset does not meet the definition of a
financial asset6 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:
- Past events
- Current conditions
- 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.
Many of the disclosure requirements in ASC 326-20-50-10 through 50-12 that describe
an entity’s allowance for credit losses are consistent with those in existing U.S.
GAAP. In general, the objective of these requirements 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.
The rollforward of the allowance for credit losses is generally the same as that
required under ASC 310-10-50-11B, with one notable difference. Because ASC 326
requires an entity to recognize at acquisition an allowance for credit losses on
assets deemed to be PCD that is not recognized through a provision for credit losses
(i.e., the gross-up approach), the entity must also include the allowance recognized
on PCD assets within the rollforward required by ASC 326-20-50-13.
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.
For certain loans, existing interest income recognition methods are based on the
initial investment, without a deduction for the allowance for credit losses, which
may allow certain entities to recognize interest income on principal that is not
expected to be collected. However, certain regulatory policies mitigate this risk by
requiring an entity to stop accruing interest when it believes that the collection
of principal, interest, or both is in doubt. As a result, some entities may have a
nonaccrual policy in which they no longer accrue interest in certain circumstances
(e.g., when a borrower is in default for a specified period, such as 90 days past
due).
ASU 2016-13 did not amend the
existing requirements related to placing a loan on nonaccrual status. However, 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). While these disclosure requirements are generally consistent with
those in ASC 310-10-50-5A through 50-8, an entity is now required to provide
additional information for financial assets on nonaccrual status under ASC 326. The
tables below compare the disclosure requirements for financial assets on nonaccrual
status under ASC 310 with those under ASC 326. Requirements added by ASC 326 are in
boldface.
|
ASC 310-10-50-6
|
ASC 326-20-50-17
|
|---|---|
|
Accounting policies related to:
|
Accounting policies related to:
|
|
ASC 310-10-50-7
|
ASC 326-20-50-16
|
|---|---|
|
As of each balance sheet date, the entity must present:
|
As of each balance sheet date, the entity
must present:
|
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
In a manner consistent with the disclosure requirements in
current U.S. GAAP (ASC 310-10-50-9 and 50-10), 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 |
Yes(a), (b)
|
Yes
|
No
|
Yes
| |
|
Credit quality information — vintage
disclosures
|
326-20-50-6 and 50-7
|
Yes(b), (c)
|
Yes
|
No
|
No
| |
|
Allowance for credit losses
|
326-20-50-10 through 50-12
|
Yes
|
Yes
|
Yes
|
Yes
| |
|
Rollforward of the allowance for credit
losses
|
326-20-50-13
|
Yes
|
Yes
|
Yes
|
Yes
| |
|
Past-due status
|
326-20-50-14
|
Yes(b)
|
Yes
|
Yes
|
Yes
| |
|
Nonaccrual status
|
326-20-50-16 and 50-17
|
Yes(b)
|
Yes
|
Yes
|
Yes
| |
|
PCD financial assets
|
326-20-50-19
|
Yes
|
Yes
|
Yes
|
Yes
| |
|
Collateral-dependent financial assets
|
326-20-50-20
|
Yes
|
Yes
|
Yes
|
Yes
| |
|
Off-balance-sheet exposures
|
326-20-50-21 and 50-22
|
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 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.
| ||||||
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:
- The aggregate related fair value of investments with unrealized losses
- 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:
- The nature of the investment(s)
- The cause(s) of the impairment(s)
- The number of investment positions that are in an unrealized loss position
- The severity of the impairment(s)
- 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:
- Performance indicators of the
underlying assets in the security, including any
of the following:01. Default rates02. Delinquency rates03. Percentage of nonperforming assets.
- Debt-to-collateral-value ratios
- Third-party guarantees
- Current levels of subordination
- Vintage
- Geographic concentration
- Industry analyst reports
- Credit ratings
- Volatility of the security’s fair value
- Interest rate changes since purchase
- Any other information that the investor considers relevant.
- Performance indicators of the
underlying assets in the security, including any
of the following:
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:
- Default rates
- Delinquency rates
- 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.
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. As a result, many of the disclosure requirements are similar to those in
existing U.S. GAAP (e.g., those in ASC 320-10-50-1 through 50-8B). However, given
the change from an OTTI model to an expected credit losses model for AFS debt
securities, there are some differences. The table below compares the disclosure
requirements for AFS debt securities in existing U.S. GAAP with those in ASC 326.
Differences between the disclosure requirements are in boldface.
|
ASC 320-10-50
|
ASC 326-30-50
|
|---|---|
|
Unit of Account
|
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.
|
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
|
AFS Debt Securities in an Unrealized Loss Position Without an
Allowance for Credit Losses
|
|
|
|
Credit Losses Recognized in Earnings
|
Allowance for Credit Losses
|
|
For interim and annual periods in which the entity recognizes
an OTTI, it must disclose the method and inputs used to
measure the credit loss.
|
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 Credit Losses Recognized in Earnings
|
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 credit losses recognized in earnings as follows:
|
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:
|
|
N/A
|
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:
|
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. In a manner consistent with the requirements in
existing U.S. GAAP, 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
2
See paragraph BC28 of ASU 2022-02.
3
The ASC master glossary defines an SEC filer
as follows:
An entity that is
required to file or furnish its financial statements with
either of the following:
- The Securities and Exchange Commission (SEC)
-
With respect to an entity subject to Section 12(i) of the Securities Exchange Act of 1934, as amended, the appropriate agency under that Section.
Financial statements
for other entities that are not otherwise SEC filers whose
financial statements are included in a submission by another
SEC filer are not included within this definition.
4
This issue was originally discussed at the
November 2018 TRG meeting.
5
See ASC 326-20-15-2.
6
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.”