As a precursor, the standard first defines a receivable and states that it relates to items such as trade accounts receivable, loans, loan syndications, factoring arrangements, and standby letters of credit.
From a high level, the standard discusses how to present each of the different types of receivables in the financial statements. As each of these has its own unique characteristics, they each have special circumstances which must be taken into account.
Disclosure of Credit Risk in ASC 310-10
Due to the inherent uncertainty which comes with accounts receivable, it is important to note that a specific risk can be associated with the collection of these. While an allowance for doubtful accounts is made, certain disclosures need also be mentioned in connection with the reporting of them. These include the nature of the credit risk which is associated with receivables, and how that risk has been applied to the methodology for calculating the allowance for doubtful accounts. It should also be noted that it is not a common disclosure, as the standard indicates trade receivables are specifically excluded from this requirement.
However credit quality can certainly effect the ability to collect receivables, and ASC 310-30 states that the credit quality of the issuer of purchased loans can impact the amount reported as accreted yield on the financials. It should be noted that these various types of purchased loans of varying credit quality are included in the standard, as they represent loans or notes receivable.
Disclosures under ASC 310-30
Certain disclosures must be made in the financials in accordance with GAAP. The following list will specify which ones are required:
- Policy for accounting for prepayments on loans
- The following information for purchased loans:
- Outstanding balance measured in undiscounted cash flows
- Carrying amount at the beginning of the period
- Carrying amount at the end of the period
- Reconcile the amount of accreted yield over the period
- For loans acquired this period, the contractual payments required, the expected cash flows to be collected, the fair value at acquisition, and the carrying amount of nonaccrual loans
- Carrying amount of all loans (other than those in the current period) in nonaccrual status
- For loans not accounted for as debt:
- Amount of expense recognized as impairment
- Amount of reduction in valuation allowance for losses, caused by changes in cash flow
- Amount of expected uncollected loans at the beginning of the period, as well as the amount at the end of the period
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