ASC 310-30, Receivables, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, addresses the accounting for acquired loans that show evidence of having deteriorated in terms of credit quality since their origination (i.e., impaired loans). ASC 310-30 does not apply to loans originated by the entity. As a result of their deteriorated credit quality, the loans are generally acquired at a discount (i.e., below their par value). A loan is defined broadly in ASC 310-30 and encompasses a wide array of contractual rights to receive money, including longer term accounts receivable, notes receivable, and debt securities. See discussion of ASC 310-30 related to the purchase of impaired loans in ARM 3560.51.

On December 18, 2009, the AICPA issued a letter to the SEC staff regarding the accounting model to be used for recognition of discount accretion for loans acquired in a business combination, not subject to ASC 310-30, with a fair value (or relative fair value, if acquired through an asset purchase) that is lower than the contractual amounts due in part to deteriorated credit quality. The letter clarified that, in the absence of further standard setting, the SEC Staff would not object to an accounting model based on contractual cash flows under ASC 310-20 or an accounting model based on expected cash flows under ASC 310-30; however, an entity should disclose its accounting policy election and apply it consistently.

Further, an entity that has elected an accounting policy based on expected cash flows should follow all of the accounting and disclosure guidance in ASC 310-30. See discussion of ASC 310-30 related to the purchase of impaired loans in ARM 3560.51.