Download Full Text (2.1 MB)
This proposed Statement of Position (SOP) addresses accounting for differences between contractual and expected future cash flows from an investor's initial investment in certain loans and debt securities (loans) acquired in a transfer when such differences are attributable, at least in part, to credit quality. It includes such loans acquired in purchase business combinations and would apply to all enterprises. The proposed SOP would limit the yield that may be accreted (accretable yield) to the excess of the investor's estimate of undiscounted expected future principal and interest cash flows (expected future cash flows) over the investor's initial investment in the loan. This SOP would require that the excess of contractual cash flows over expected future cash flows (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. The proposed SOP would also prohibit investors from displaying accretable yield and nonaccretable difference in the balance sheet. The proposed SOP would relate subsequent impairment of the loan to the investor's ability to collect all cash flows expected at acquisition. Subsequent increases in expected future cash flows would be recognized prospectively through adjustment of the loan's yield over its remaining life. The provisions of this proposed SOP would be effective for financial statements issued for fiscal years beginning after June 15, 2000.
Loan sales -- United States -- Accounting
Accounting | Taxation
American Institute of Certified Public Accountants. Discount Accretion Task Force and American Institute of Certified Public Accountants. Accounting Standards Executive Committee, "Proposed statement of position : accounting for discounts related to credit quality;Accounting for discounts related to credit quality" (1998). Statements of Position. 645.