Technical Accounting of the Day

Intent to Sell and AFS Impairments Under ASC 326: What Happens When Investment Discretion Is Delegated? When an available-for-sale (AFS) debt security is impaired, the accounting treatment depends on whether the entity intends to sell the security or will be required to sell it before recovering its amortized cost basis. A common question arises when a third-party investment manager has discretion to sell securities. How does this impact the impairment analysis under U.S. GAAP? Under ASC 326-30-35-10 , if an entity intends to sell an impaired AFS debt security, or if it is more likely than not that the entity will be required to sell it before recovery, the security must be written down to fair value. Any existing credit loss allowance is reversed, and the full impairment is recognized in earnings. This guidance applies regardless of whether the sale is initiated by internal management or an external investment adviser. In cases where a third-party investment manager has fu...

Accretion of Discount on Fair Value Investments Investment companies often ask whether they should accrete purchased discounts on beneficial interests that are measured at fair value. This question arises because these investments are measured at fair value, but interest income is still reported separately in the income statement. Under ASC 325-40-15-7 , beneficial interests classified as trading are included in the scope of interest income recognition guidance. This applies even when the investment is measured at fair value, as long as interest income is presented separately. This practice is common in industries such as banking and investment management. Further guidance under ASC 320-10-35-4 and ASC 325-40-35-2 confirms that the method used to recognize interest income or expense should remain consistent, regardless of whether the financial instrument is measured at amortized cost or fair value. This means that any premium or discount should be amortized or...

Series: Understanding Derivatives and Hedge Accounting Under U.S. GAAP This post is part of a five-part series exploring the key accounting concepts, presentation rules, and disclosure requirements for derivatives and hedging under U.S. GAAP. Whether you’re a corporate controller, auditor, or finance professional, this series is designed to help you navigate the complexities of ASC 815 with practical insights and real-world examples. Each installment breaks down a different aspect of the guidance, from definitions and usage to balance sheet, income statement, cash flow statement, and disclosure considerations. Part 1: What They Are and Why They Matter Part 2: Balance Sheet Presentation Part 3: Income Statement Impact Part 4: Cash Flow Classification Part 5: Disclosures for Derivatives and Hedges Disclosures for Derivatives and Hedges: What’s Required We wrap up our five-part series with a detailed look at disclosure requirements. Disclosures ...

Series: Understanding Derivatives and Hedge Accounting Under U.S. GAAP This post is part of a five-part series exploring the key accounting concepts, presentation rules, and disclosure requirements for derivatives and hedging under U.S. GAAP. Whether you’re a corporate controller, auditor, or finance professional, this series is designed to help you navigate the complexities of ASC 815 with practical insights and real-world examples. Each installment breaks down a different aspect of the guidance, from definitions and usage to balance sheet, income statement, cash flow statement, and disclosure considerations. Part 1: What They Are and Why They Matter Part 2: Balance Sheet Presentation Part 3: Income Statement Impact Part 4: Cash Flow Classification Part 5: Disclosures for Derivatives and Hedges Cash Flow Classification of Derivatives In part four of our five-part series, we focus on the cash flow statement. ASC 230 allows some flexibility in...

Series: Understanding Derivatives and Hedge Accounting Under U.S. GAAP This post is part of a five-part series exploring the key accounting concepts, presentation rules, and disclosure requirements for derivatives and hedging under U.S. GAAP. Whether you’re a corporate controller, auditor, or finance professional, this series is designed to help you navigate the complexities of ASC 815 with practical insights and real-world examples. Each installment breaks down a different aspect of the guidance, from definitions and usage to balance sheet, income statement, cash flow statement, and disclosure considerations. Part 1: What They Are and Why They Matter Part 2: Balance Sheet Presentation Part 3: Income Statement Impact Part 4: Cash Flow Classification Part 5: Disclosures for Derivatives and Hedges Income Statement Presentation of Derivatives In part three of our five-part series, we focus on the income statement. The income statement treatment ...

Series: Understanding Derivatives and Hedge Accounting Under U.S. GAAP This post is part of a five-part series exploring the key accounting concepts, presentation rules, and disclosure requirements for derivatives and hedging under U.S. GAAP. Whether you’re a corporate controller, auditor, or finance professional, this series is designed to help you navigate the complexities of ASC 815 with practical insights and real-world examples. Each installment breaks down a different aspect of the guidance, from definitions and usage to balance sheet, income statement, cash flow statement, and disclosure considerations. Part 1: What They Are and Why They Matter Part 2: Balance Sheet Presentation Part 3: Income Statement Impact Part 4: Cash Flow Classification Part 5: Disclosures for Derivatives and Hedges Balance Sheet Presentation of Derivatives In this second installment of our five-part series, we turn to the balance sheet. Derivatives must be repor...

Series: Understanding Derivatives and Hedge Accounting Under U.S. GAAP This post is part of a five-part series exploring the key accounting concepts, presentation rules, and disclosure requirements for derivatives and hedging under U.S. GAAP. Whether you’re a corporate controller, auditor, or finance professional, this series is designed to help you navigate the complexities of ASC 815 with practical insights and real-world examples. Each installment breaks down a different aspect of the guidance, from definitions and usage to balance sheet, income statement, cash flow statement, and disclosure considerations. Part 1: What They Are and Why They Matter Part 2: Balance Sheet Presentation Part 3: Income Statement Impact Part 4: Cash Flow Classification Part 5: Disclosures for Derivatives and Hedges What Are Derivatives and Why Do Companies Use Them? This is the first post in a five-part series exploring the fundamentals of derivatives and hedgin...