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Virtually every reporting entity holds receivables, though their nature varies depending on the characteristics of the business. Accordingly, the guidance governing the receivables will also vary. This section addresses presentation and disclosure considerations for the following topics:
  • Accounts and notes receivable and financing receivables, including allowances for credit losses and impaired loans
  • Shareholder and other receivables
  • Discounts or premiums on note receivables
  • Loan origination and other fees, including net fees and costs
  • Hypothecation or other pledging of receivables

8.3.1 Accounts and notes receivable and financing receivables

The term “accounts and notes receivable” is used in S-X 5-02 and is generally consistent with the “financing receivable” terminology used in US GAAP. Financing receivables are contractual rights to receive cash either on demand or on fixed or determinable dates, and are recognized as an asset on the balance sheet. Examples of financing receivables include trade accounts receivable, notes receivable, credit card receivables, loans, and certain receivables relating to a lessor’s rights to payments from a lease.

8.3.1.1 Presentation requirements

ASC 310-10-45-2 permits loans or trade receivables to be presented as aggregate amounts. However, major categories of loans or trade receivables should be presented separately either on the balance sheet or in the footnotes. Receivables that are held for sale should be presented separately on the balance sheet from other receivables.
Unearned discounts (other than cash or quantity discounts), finance charges, or prepaid interest should be reflected as deductions from the related receivable. An allowance for doubtful accounts also should be shown as a reduction of the related receivable.
Notes and accounts receivable from officers, employees, or affiliated companies are required to be disclosed separately on the balance sheet. Additionally, ASC 310-10-45-14 requires notes received as equity contributions to be presented in equity. As noted in ASC 505-10-45-2, reporting such a note as an asset is generally not appropriate.
S-X 5-02 requires SEC registrants to separately disclose receivables from customers (trade); related parties; underwriters, promoters, and employees (other than related parties) which arose in a manner other than the ordinary course of business; and receivables held for sale (reported at lower of cost or fair value).
In addition, if the aggregate amount of notes receivable exceeds 10% of the aggregate amount of receivables, SEC registrants must separately disclose accounts receivable and notes receivable either on the balance sheet or in a footnote.

8.3.1.2 Disclosure requirements

ASC 310-10-50-2 specifies the information required to be addressed in an accounting policy footnote for all loans and trade receivables.

ASC 310-10-50-2

The summary of significant accounting policies shall include the following:

  1. The basis for accounting for loans and trade receivables
  2. The method used in determining the lower of cost or fair value of nonmortgage loans held for sale (that is, aggregate or individual asset basis)
  3. The classification and method of accounting for interest-only strips, loans, other receivables, or retained interests in securitizations that can be contractually prepaid or otherwise settled in a way that the holder would not recover substantially all of its recorded investment
  4. The method for recognizing interest income on loan and trade receivables, including a statement about the entity’s policy for treatment of related fees and costs, including the method of amortizing net deferred fees or costs.

Additionally, ASC 310-10-50-4 requires reporting entities to disclose the allowance for credit losses (i.e., allowance for doubtful accounts), unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs in their financial statements. In addition, reporting entities should disclose their policy for writing off uncollectible trade accounts receivable (excluding credit card receivables) that have a contractual maturity of one year or less, and arose from the sale of goods or services.
Receivables are generally considered to be financial assets, and as such, reporting entities are required to comply with the fair value disclosure requirements of ASC 825, Financial Instruments (see FSP 20). However, as noted in ASC 310-10-50-26, reporting entities do not need to provide the fair value disclosures for trade receivables due in one year or less.
ASC 310-10-50-6 through ASC 310-10-50-7A require accounting policy disclosures by class of financing receivables, except for the following types of financing receivables, as detailed in ASC 310-10-50-5A and ASC 310-10-50-5B:
  • Receivables measured at fair value through earnings (see FSP 20)
  • Receivables measured at lower of cost or fair value (see ASC 948-310-50)
  • Trade accounts receivable (other than credit card receivables) that have a contractual maturity of one year or less, and arose from the sale of goods or services
  • Participant loans in defined contribution pension plans
  • Loans acquired with deteriorated credit quality (see discussion under “troubled debt restructuring by a creditor” below)
The accounting policy disclosures should include the following:

Excerpt from ASC 310-10-50-6

  1. The policy for placing financing receivables, if applicable, on nonaccrual status (or discontinuing accrual of interest)
  2. The policy for recording payments received on nonaccrual financing receivables, if applicable
  3. The policy for resuming accrual of interest
  4. Subparagraph superseded by Accounting Standards Update No. 2010-20
  5. The policy for determining past due or delinquency status.

As required by ASC 310-10-50-7 and ASC 310-10-50-7A, reporting entities should disclose the amount of financing receivables on nonaccrual status and the amounts that are 90 days or more past due and still accruing, as of each balance sheet date. They should also disclose the aging for financing receivables that are past due at the end of the reporting period.
Reporting entities may have credit exposure related to off-balance-sheet loan commitments, standby letters of credit, certain financial guarantees, and other similar instruments (other than those within the scope of ASC 815, Derivatives and Hedging). In addition to the disclosures required by ASC 450, Contingencies (see FSP 23), reporting entities should also describe the accounting policies and methods used to estimate its liabilities related to off-balance-sheet credit exposures and related charges. The disclosure should discuss factors that influenced management’s judgment and the risk elements relevant to their financial instruments.
Reporting entities are also required by ASC 310-10-50-29 to disclose quantitative and qualitative information by class that indicates the credit quality of their financing receivables. This information should include all of the following:
  • A description of the credit quality indicator
  • The recorded investment in financing receivables by credit quality indicator
  • The date/range of dates for which each credit quality indicator was updated
In addition, if the reporting entities disclose internal risk ratings, they should provide qualitative information on how those ratings relate to the risk of loss.
New guidance
Upon adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ASC 310-10-50-2(b) will be amended and ASC 310-10-50-5A through ASC 310-10-50-7A will be superseded.
ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The ASU also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements.
The accounting and disclosure requirements of ASU 2016-13 are covered in PwC's Loans and Investments guide and are not discussed in this guide.
Allowance for credit losses related to financing receivables
The disclosure requirements discussed in this section apply to financing receivables, except for the receivables listed in ASC 310-10-50-7B (e.g., certain trade accounts receivable, receivables measured at fair value with changes in fair value reported in earnings, receivables measured at lower of cost or fair value, and participant loans in defined contribution pension plans), and a lessor’s net investment in leveraged leases.
ASC 310 requires reporting entities to disclose information about financing receivables’ allowance for credit losses at a portfolio segment level.

ASC 310-10-50-11B

  1. A description of the entity’s accounting policies and methodology used to estimate the allowance for credit losses, including all of the following:
    1. A description of the factors that influenced management’s judgment, including both of the following:
      1. Historical losses
      2. Existing economic conditions.
    2. A discussion of risk characteristics relevant to each portfolio segment
    3. Identification of any changes to the entity’s accounting policies or methodology from the prior period and the entity’s rationale for the change.
  2. A description of the policy for charging off uncollectible financing receivables
  3. The activity in the allowance for credit losses for each period, including all of the following:
    1. The balance in the allowance at the beginning and end of each period
    2. Current period provision
    3. Direct write-downs charged against the allowance
    4. Recoveries of amounts previously charged off.
  4. The quantitative effect of changes identified in item (a)(3) on item (c)(2)
  5. The amount of any significant purchases of financing receivables during each reporting period
  6. The amount of any significant sales of financing receivables or reclassifications of financing receivables to held for sale during each reporting period
  7. The balance in the allowance for credit losses at the end of each period disaggregated on the basis of the entity’s impairment method
  8. The recorded investment in financing receivables at the end of each period related to each balance in the allowance for credit losses, disaggregated on the basis of the entity’s impairment methodology in the same manner as the disclosure in item (g).

In order to disaggregate the information required by items (g) and (h) on the basis of the impairment methodology, ASC 310-10-50-11C requires reporting entities to separately disclose:
  • Amounts collectively evaluated for impairment (determined under ASC 450-20)
  • Amounts individually evaluated for impairment (determined under ASC 310-10-35)
  • Amounts related to loans acquired with deteriorated credit quality (determined under ASC 310-30)
In addition, ASC 210-10-45-13 requires reporting entities to deduct asset valuation allowances for losses from the assets or group of assets to which the allowances relate. ASC 310-10-50-14 requires reporting entities to include appropriate disclosure of asset valuation allowances in the footnotes.
Finally, if loan products have contractual terms that expose the reporting entities to risks and uncertainties, the disclosure requirements of ASC 275, Risks and Uncertainties, may be required. See FSP 24 for discussion of disclosure requirements associated with risks and uncertainties.
New guidance
Upon adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ASC 310-10-50-7A, and ASC 310-10-50-11B through ASC 310-10-50-11C will be superseded. The accounting and disclosure requirements of ASU 2016-13 are covered in PwC's Loans and Investments guide and are not discussed in this guide.
Impaired loans
ASC 310-10-35-16 defines impaired loans.

Excerpt from ASC 310-10-35-16

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Sometimes a financing receivable may meet the definition of an impaired loan. In these situations, ASC 310-10-50-14A requires reporting entities to disclose both the accounting policy and the amounts of such loans. In addition, the following disclosures are required for partially charged off loans. These disclosures are not applicable to fully charged off loans since both the recovered investment and allowance for credit losses will equal zero.

ASC 310-10-50-15

An entity shall disclose all of the following information about loans that meet the definition of an impaired loan in paragraphs 310-10-35-16 through 35-17 by class of financing receivable:

  1. As of the date of each statement of financial position presented:
    1. Subparagraph superseded by Accounting Standards Update No. 2010-20
    2. Subparagraph superseded by Accounting Standards Update No. 2010-20
    3. The recorded investment in the impaired loans and both of the following:
      1. The amount of that recorded investment for which there is a related allowance for credit losses determined in accordance with Section 310-10-35 and the amount of that allowance
      2. The amount of that recorded investment for which there is no related allowance for credit losses determined in accordance with Section 310-10-35.
    4. The total unpaid principal balance of the impaired loans.
  2. The entity’s policy for recognizing interest income on impaired loans, including how cash receipts are recorded
  3. For each period for which results of operations are presented:
    1. The average recorded investment in the impaired loans
    2. The related amount of interest income recognized during the time within that period that the loans were impaired
    3. The amount of interest income recognized using a cash-basis method of accounting during the time within that period that the loans were impaired, if practicable.
  4. The entity’s policy for determining which loans the entity assesses for impairment under Section 310-10-35
  5. The factors considered in determining that the loan is impaired.

As discussed in ASC 310-10-50-11B(c), reporting entities should disclose the activity in the total allowance for credit losses related to loans for each period presented, including the balance in the allowance at the beginning and end of each period, additions charged to operations, direct write-downs charged against the allowance, and recoveries of amounts previously charged off.
Finally, as discussed in ASC 310-10-50-19, when a change in present value attributable to the passage of time is recorded as interest income, disclosure of the amount of the change is required.
New guidance
Upon adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ASC 310-10-50-15 through ASC 310-10-50-16 will be superseded. The accounting and disclosure requirements of ASU 2016-13 are covered in PwC’s Loans and Investments guide and are not discussed in this guide.
Creditor disclosures of troubled debt restructurings
ASC 310-40 requires a creditor to disclose the amount of commitments, if any, it has made to lend additional funds to debtors whose receivables to the creditor have been modified in a troubled debt restructuring.
However, for impaired loans that have been restructured in a troubled debt restructuring involving a modification of terms, the disclosures required by ASC 310-10-50-15(a) and ASC 310-10-50-15(c) are not required in years after the restructuring if both of the following conditions exist:
  • The interest rate in the restructuring agreement is greater than or equal to the rate the creditor was willing to accept for a new loan with comparable risk at the time of the restructuring
  • The loan is not impaired based on the terms of the restructuring agreement
This disclosure exception should be applied consistently for all restructured loans in a troubled debt restructuring.
ASC 310-10-50-31 through ASC 310-10-50-34 also provide disclosure requirements for a creditor’s troubled debt restructuring of financing receivables, including a creditor’s modification of a lease receivable that meets the definition of a troubled debt restructuring. This guidance is not applicable to certain receivables listed in ASC 310-10-50-32 (i.e., certain trade accounts receivable, receivables measured at fair value with changes in fair value reported in earnings, receivables measured at lower of amortized cost basis or fair value, and participant loans in defined contribution pension plans).
For all income statement periods presented, reporting entities must disclose the following for any troubled debt restructurings of financing receivables occurring during the period:
  • Qualitative and quantitative information, by class, including how the receivable was modified and the modification’s financial effects
  • Qualitative information, by portfolio segment, discussing how such modifications factor into the determination of the allowance for credit losses
If there was a payment default during the period on any financing receivables that were modified as a troubled debt restructuring within the twelve months preceding the balance sheet date, reporting entities should also disclose the following for each income statement presented:
  • Qualitative and quantitative information, by class, indicating the types and amount of financing receivables that defaulted
  • Qualitative information, by portfolio segment, discussing how such defaults factor into the determination of the allowance for credit losses
Loans acquired with deteriorated credit quality
A reporting entity may purchase loans with deteriorated credit quality. ASC 310-30 provides specific disclosure requirements for these types of loans.
For such loans, ASC 310-30-50-1 requires reporting entities to describe in their footnotes how prepayments are considered when determining contractual cash flows and cash flows expected to be collected. In addition, ASC 310-30-50-2 requires additional disclosures.

ASC 310-30-50-2

In addition to disclosures required by other generally accepted accounting principles (GAAP), for each balance sheet presented, an investor shall disclose the following information about loans within the scope of this Subtopic:

  1. Separately for both those loans that are accounted for as debt securities and those loans that are not accounted for as debt securities, all of the following.
    1. The outstanding balance (see paragraph 310-30-50-3) and related carrying amount at the beginning and end of the period
    2. The amount of accretable yield at the beginning and end of the period, reconciled for additions, accretion, disposals of loans, and reclassifications to or from nonaccretable difference during the period
    3. For loans acquired during the period, the contractually required payments receivable, cash flows expected to be collected, and fair value at the acquisition date
    4. For those loans within the scope of this Subtopic for which the income recognition model in this Subtopic is not applied in accordance with paragraph 310-30-35-3, the carrying amount at the acquisition date for loans acquired during the period and the carrying amount of all loans at the end of the period.
  2. Further, for those loans that are not accounted for as debt securities, both of the following:
    1. The amount of both of the following:
      1. Any expense recognized pursuant to paragraph 310-30-35-10(a)
      2. Any reductions of the allowance recognized pursuant to paragraph 310-30-35-10(b)(1) for each period for which an income statement is presented.
    2. The amount of the allowance for uncollectible accounts at the beginning and end of the period.

New guidance
Upon adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ASC 310-30-50-2 will be superseded. The accounting and disclosure requirements of ASU 2016-13 are covered in PwC’s Loans and Investments guide and are not discussed in this guide.

8.3.2 Shareholder and other receivables

SAB Topic 4.E, Receivables from Sale of Stock (codified in ASC 310-10-S99-2), states that reporting entities should generally separately present on the balance sheet all amounts receivable from officers and directors resulting from sales of stock or from other transactions (other than expense advances or sales on normal trade terms). This presentation is required regardless of whether such amounts are shown as assets or deductions from shareholders' equity. Refer to FSP 5 for further discussion on determining the appropriate presentation of this type of receivable.
In accordance with S-X 5-02(17), other receivables that are in excess of 5% of total assets should be presented separately on the face of the balance sheet or in a footnote.

8.3.3 Discounts or premiums on note receivables

Often, the face amount of a note receivable does not represent the present value of the consideration given or received in the exchange. In this situation, the reporting entity records a discount or premium equal to the difference between the consideration and the face value.
ASC 835-30 includes the presentation and disclosures required for discounts or premiums on note receivables.

ASC 835-30-45-1A

The discount or premium resulting from the determination of present value in cash or noncash transactions is not an asset or liability separable from the note that gives rise to it. Therefore, the discount or premium shall be reported in the balance sheet as a direct deduction from or addition to the face amount of the note. Similarly, debt issuance costs related to note shall be reported in the balance sheet as a direct deduction from the face amount of that note. The discount, premium, or debt issuance costs shall not be classified as a deferred charge or deferred credit.

ASC 835-30-45-2

The description of the note shall include the effective interest rate. The face amount shall also be disclosed in the financial statements or in the notes to the statements.

ASC 835-30-45-3

Amortization of discount or premium shall be reported as interest expense in the case of liabilities or as interest income in the case of assets. Amortization of debt issuance costs also shall be reported as interest expense.

See FSP 12 for further discussion of discount and premium presentation and disclosure considerations from the debtor’s perspective.

8.3.4 Loan origination and other fees

The unamortized balance of purchase premiums and discounts, loan origination fees, commitment fees, and other fees or costs that are being recognized as an adjustment of yield should be reported on the balance sheet as part of the loan balance to which it relates. Any commitment fee that meets the criteria of ASC 310-20-35-3 should be classified as deferred income in the financial statements.

Excerpt from ASC 310-20-35-3(a)

If the entity's experience with similar arrangements indicates that the likelihood that the commitment will be exercised is remote, the commitment fee shall be recognized over the commitment period on a straight-line basis as service fee income. If the commitment is subsequently exercised during the commitment period, the remaining unamortized commitment fee at the time of exercise shall be recognized over the life of the loan as an adjustment of yield. The term remote is used here, consistent with its use in Topic 450, to mean that the likelihood is slight that a loan commitment will be exercised before its expiration.

Per ASC 310-20-45-3, loan origination, commitment, and other fees and costs recognized as an adjustment of yield should be reported as part of interest income. Amortization of other fees, such as commitment fees that are being amortized on a straight-line basis over the commitment period or included in income when the commitment expires, should be reported as service fee income.

8.3.4.1 Net fees and costs

Reporting entities may acquire a loan by initially lending money or by purchasing the loan from another party. Typically, nonrefundable fees and costs are associated with these lending activities and loan purchases. As part of the disclosure of the method for recognizing interest income on loans, ASC 310-20-50-1 requires reporting entities to include their accounting policy for related fees and costs and their method of amortizing net deferred fees or costs.
ASC 310-20-50 includes other required disclosures related to net fees and costs.

ASC 310-20-50-2

Entities that anticipate prepayments in applying the interest method shall disclose that policy and the significant assumptions underlying the prepayment estimates.

ASC 310-20-50-3

The unamortized net fees and costs shall be reported as a part of each loan category. Additional disclosures such as unamortized net fees and costs may be included in the notes to the financial statements if the lender believes that such information is useful to the users of financial statements.

ASC 310-20-50-4 requires reporting entities to disclose the net amount of credit card fees received and costs for both purchased and originated credit cards capitalized at the balance sheet date and the related accounting policy and amortization periods.

8.3.5 Hypothecation or other pledging of receivables

S-X 4-08(b) requires disclosure of the amount of receivables mortgaged, pledged, or otherwise subject to lien. Any obligations collateralized should also be identified.
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