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2.2 Reclassification or sale of held-to-maturity securities
Publication date: 31 Dec 2022
us Reference rate reform guide
A reporting entity may make a one-time election prior to December 31, 2024 to sell or reclassify (or both sell and reclassify) debt securities classified as held-to-maturity (HTM) to either available-for-sale (AFS) or trading pursuant to ASC 848-10-35-1. Under this guidance, the sale and/or reclassification, in and of itself, would not call into question the reporting entity’s previous assertions that it had the intent and ability to hold the securities to maturity. Both of the following criteria, however, must be met at the date of transfer:
- The debt security references a rate that meets the scope of ASC 848-10-15-3 (i.e., a contract must reference LIBOR or a reference rate that is expected to be discontinued as a result of reference rate reform) and
- The debt security was classified as HTM before January 1, 2020.
For securities that are reclassified, the measurement guidance in ASC 320-10-35-10 through ASC 320-10-35-16 should be applied and recognized in the period the transfer occurs.
Question REF 2-1 addresses whether a reporting entity that makes the one-time election to sell HTM debt securities is able to subsequently sell other eligible HTM debt securities.
Question REF 2-1
As of March 15, 20X1, a reporting entity has identified eligible HTM debt securities that it intends to sell and apply the one-time election pursuant to ASC 848-10-35-1 on that date. However, the reporting entity is still in the process of evaluating whether it intends to sell or transfer other eligible HTM debt securities over the next several weeks. Can the reporting entity apply the one-time election pursuant to ASC 848-10-35-1 to those subsequent sales or transfers of eligible HTM debt securities?
As of March 15, 20X1, a reporting entity has identified eligible HTM debt securities that it intends to sell and apply the one-time election pursuant to ASC 848-10-35-1 on that date. However, the reporting entity is still in the process of evaluating whether it intends to sell or transfer other eligible HTM debt securities over the next several weeks. Can the reporting entity apply the one-time election pursuant to ASC 848-10-35-1 to those subsequent sales or transfers of eligible HTM debt securities?
PwC response
No. A reporting entity can only make its one-time election to sell or transfer (or to both sell and transfer) eligible HTM debt securities as of a specific date in the reporting period. A reporting entity cannot apply the one-time election to sell eligible HTM debt securities across multiple dates in a reporting period. If a reporting entity intends to sell eligible HTM debt securities over a period of time, it should make a one-time election to transfer the HTM debt securities to AFS or trading. Pursuant to ASC 848-10-35-2, a reporting entity shall recognize the transfer of eligible HTM debt securities to AFS or trading as of the date it makes its one-time election.
2.2.1 Required disclosures
If a reporting entity elects to sell and/or reclassify securities, the disclosure requirements in ASC 320-10-50-10 for a sale or transfer of securities classified as held-to-maturity apply. Such disclosures include:
- the net carrying amount of the HTM security that was sold or transferred,
- any derivative gains or losses deferred in accumulated other comprehensive income resulting from a hedge of the acquisition of the HTM security,
- the related unrealized or realized gain or loss, and
- the circumstances leading to the decision to sell or reclassify the HTM security.
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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