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12.2 Loans and investments: balance sheet presentation
Publication date: 31 May 2022
us Loans & investments guide
Reporting entities that present a classified balance sheet should see FSP 2.3.4 and FSP 9.4.1 for information on the presentation of loans, receivables, and investments as current and noncurrent.
ASC 825-10-45-1A requires entities to present financial assets and financial liabilities separately by measurement category and form of financial asset (i.e., securities or loans and receivables) in the statement of financial position or in the notes.
Reporting entities subject to Article 5 of SEC Regulation S-X may be required to present all items in excess of 5% of total assets separately on the face of the balance sheet or in a note based on the requirements of S-X 5-02(17). See LI 12.11 and LI 12.12 for additional considerations for insurance and banking entities subject to Article 7 or Article 9 of Regulation S-X, respectively.
12.2.1 Disclosure of loans and receivables
Generally, ASC 310 permits loans and receivables to be presented on the balance sheet as aggregate amounts. Major categories of loans or receivables should be presented separately either on the balance sheet or in the notes. Loans and receivables that are held for sale should be presented separately on the face of the balance sheet.
12.2.1.1 Disclosure of discount/premium on loans and receivables
Often, the face amount of a note receivable or a loan does not represent the current value of the consideration given or received in the exchange. In this situation, a discount or premium is recorded. Unearned discounts (other than cash or quantity discounts), finance charges, and prepaid interest are also recorded as a discount on (or reduction to) the related receivable.
ASC 835-30 includes the presentation requirements for discounts or premiums on note receivables.
Excerpt from 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.
See FSP 12 for information on discount and premium presentation and disclosure considerations from the debtor’s perspective.
12.2.1.2 Disclosure of loan origination and other fees
The unamortized balance of loan origination fees, commitment fees or other fees or costs, and purchase premiums and discounts that are being recognized as a yield adjustment, should be reported on the balance sheet as part of the loan balance to which they relate. Any fees received for a commitment to originate or purchase a loan or group of loans that meet the criteria in ASC 310-20-35-3 should be classified as deferred income on the balance sheet.
See LI 4 for information on the accounting for loan origination and other fees.
12.2.2 Disclosure of debt and equity securities
A reporting entity should present assets that are measured at fair value separate from similar assets that are carried at amortized cost on the face of the balance sheet based on the guidance in ASC 320-10-45-1, ASC 825-10-45-1A, ASC 825-10-45-1B, and Regulation S-X 5-02. To accomplish this, a reporting entity should present either of the following.
- The aggregate of the fair value and non-fair value amounts in the same line item in the balance sheet and parenthetically disclose the fair value amount included in the aggregate amount
- The fair value and non-fair value carrying amounts in two separate line items
For available-for-sale debt securities, which are measured and presented on the balance sheet at fair value, the amortized cost and allowance for credit losses should be presented parenthetically.
While S-X 5-02 requires reporting entities to have a separate line item for “marketable securities,” it refers to the disclosure requirements for current marketable equity securities prescribed by GAAP. Those requirements are detailed in ASC 321. For marketable securities other than equity securities, S-X 5-02 requires reporting entities to state parenthetically on the balance sheet or in the notes the basis for determining the aggregate amount presented in the balance sheet. Amortized cost is required to be disclosed if the securities are presented at fair value and, likewise, fair value is required to be disclosed if the securities are presented at amortized cost.
We believe that complying with ASC 320 and ASC 321 satisfies the requirements of S-X 5-02 in that investments in debt and equity securities will be presented separately from other assets. We do not believe that the term “marketable securities” is required on the face of the balance sheet.
Reporting entities subject to industry-specific guidance under Regulation S-X, such as bank holding companies and insurers, have different reporting requirements with regard to balance sheet captions. For example, insurers are required to present fixed-maturity securities separate from equity securities on the face of the balance sheet. This chapter does not address all of the industry-specific guidance for balance sheet presentation. See LI 12.11 and LI 12.12 for additional considerations for insurance and banking entities subject to Article 7 or Article 9 of Regulation S-X.
See FSP 5 for information on the presentation of a subsidiary’s investment in its parent’s stock.
12.2.3 Disclosure of credit losses
For assets subject to ASC 326, reporting entities should separately present the estimate of expected credit losses on the face of the balance sheet as an allowance that reduces the amortized cost basis of the relevant financial asset. The same presentation is required for purchased financial assets with credit deterioration. See LI 9 for information on purchased financial assets with credit deterioration.
ASC 326 also contains presentation guidance for off-balance sheet credit exposures that are in its scope, such as loan commitments, standby letters of credit, financial guarantees, and similar instruments (provided they are not accounted for as insurance or derivatives under ASC 815). The guidance requires reporting entities to present an estimate of expected losses for these types of exposures on the balance sheet as a liability. If an off-balance sheet credit exposure is related to a recognized financial asset (e.g., a partially drawn revolving line of credit), then the expected credit loss liability related to the off-balance sheet amount should be recorded and presented separate from the allowance for credit losses related to the drawn amount, which is deducted from the asset's amortized cost basis.
The allowance for credit losses for available-for-sale securities should be shown parenthetically on the face of the balance sheet per ASC 326-30-45-1. Accumulated other comprehensive income on available-for-sale securities for which an allowance for credit losses has been recorded should be presented separate from other components of accumulated other comprehensive income on the balance sheet and in the statement of changes in equity.
12.2.4 Portfolio layer method
For any entities that have adopted ASU 2022-01, utilizing a portfolio layer method hedge, there are specific balance sheet presentation and disclosure considerations for presenting basis adjustments resulting from these hedges.
The “portfolio layer method” permits reporting entities to designate the portion of a closed portfolio of financial assets, beneficial interests secured by financial assets, or a combination of the two, that is not expected to be prepaid during the hedge period as the hedged item in a fair value hedge of interest rate risk. Although the portfolio layer method (originally referred to as the last-of-layer model) was designed considering prepayable mortgage loans or mortgage-backed securities, it may be applicable to other assets as well. The guidance allows an entity to essentially ignore prepayment risk in the hedge relationship even when prepayable assets are present in the closed portfolio. It does so by permitting designation of the portion of the pool not expected to be prepaid, defaulted, or sold as the hedged item.
For an active portfolio layer hedge, the basis adjustment would not be allocated to individual assets until the hedge is dedesignated. The basis adjustment is maintained on the closed portfolio of assets and therefore adjusts the carrying amount of the balance sheet line item in which the closed portfolio of assets is presented. If the closed portfolio of assets consists of available-for-sale debt securities, the basis adjustment will adjust the amount recorded in accumulated other comprehensive income, but will not adjust the fair value of the available-for-sale securities. If the assets included in the closed portfolio are presented in different balance sheet line items, the total basis adjustment should be allocated to the different financial statement lines in a systematic and rational method. Refer to FSP 19.3.4 for further information.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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