This free, guided checker walks your finance team through the key decision points for ASC 326-30 AFS Debt Security Impairment. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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ASC 326-30 applies only to debt securities classified as available-for-sale under ASC 320. Classification drives the impairment model: held-to-maturity securities use the expected credit loss allowance in ASC 326-20, while trading debt securities and equity securities are measured at fair value through earnings and require no separate impairment test. Confirm the designation made at acquisition before proceeding.
Held-to-maturity debt securities follow the current expected credit loss (CECL) allowance model in ASC 326-20, not the AFS impairment model. Trading securities are measured at fair value through earnings under ASC 320; no separate impairment model applies. Equity securities follow ASC 321, including its impairment guidance for measurement alternative investments; ASC 326-30 does not apply.
Official guidance: FASB Accounting Standards Codification
Compare the reporting-date fair value measured under ASC 820 with the security's amortized cost basis. The comparison is made at the individual security level; unrealized gains on other holdings cannot offset the loss on the security being assessed. If fair value has recovered to or above amortized cost, any allowance recorded in a prior period must be reversed through credit loss expense.
No impairment exists; reduce any previously recorded allowance for credit losses through earnings because the allowance cannot exceed the unrealized loss (ASC 326-30-35-13).
Official guidance: FASB Accounting Standards Codification
Intent to sell means a present decision to sell, not a general willingness to sell at the right price. Evidence includes disposition authorizations, instructions to investment managers, and sales executed shortly after period end. Once intent to sell exists, the split between credit and noncredit losses no longer matters: the entire difference between amortized cost and fair value is recognized in earnings.
Write the amortized cost basis down to fair value through earnings; any existing allowance for credit losses is written off first (ASC 326-30-35-10).
Official guidance: FASB Accounting Standards Codification
This test looks to compulsion rather than choice: sustained deposit outflows, margin or collateral calls, regulatory directives, or cash flow forecasts that leave no realistic alternative to selling the security. Document the holding-ability analysis with liquidity projections, contingency funding plans, and any regulatory correspondence, and refresh it each reporting period while the security remains in a loss position.
Write the amortized cost basis down to fair value through earnings; any existing allowance for credit losses is written off first (ASC 326-30-35-10).
Official guidance: FASB Accounting Standards Codification
ASC 326-30-35-4 requires the entity to determine whether the decline below amortized cost resulted from a credit loss or from other factors. Relevant considerations include the extent of the decline, adverse conditions specific to the security, issuer, industry, or geography, the payment structure of the security, failures to make scheduled payments, and rating agency actions. Unlike the legacy other-than-temporary impairment model, the length of time the security has been in a loss position is not a determinative factor.
The decline did not result from a credit loss; recognize the entire unrealized loss in other comprehensive income with no allowance (ASC 326-30-35-4).
Official guidance: FASB Accounting Standards Codification
Develop a best estimate of the cash flows expected to be collected using reasonable and supportable information about the issuer, any guarantors or credit enhancements, and underlying collateral, then discount those cash flows at the effective interest rate implicit in the security at the date of acquisition. If the present value is below amortized cost, the shortfall is the credit loss. Retain the cash flow model, key assumptions, and sensitivity analysis in the workpapers.
No credit loss exists; report the entire decline in other comprehensive income, net of applicable taxes, with no allowance (ASC 326-30-35-4).
Official guidance: FASB Accounting Standards Codification
The allowance for credit losses on an available-for-sale debt security cannot exceed the amount by which amortized cost exceeds fair value - the fair value floor in ASC 326-30-35-13. When the discounted cash flow shortfall is larger than the total decline, the allowance stops at the floor and nothing remains in other comprehensive income; when it is smaller, the excess decline is a noncredit loss reported in other comprehensive income.
Record an allowance equal to the entire difference between amortized cost and fair value; the fair value floor limits the allowance and no unrealized loss remains in other comprehensive income (ASC 326-30-35-13). Record an allowance for the credit portion measured by the discounted cash flow shortfall and report the noncredit remainder in other comprehensive income (ASC 326-30-35-4; ASC 326-30-35-13).
Official guidance: FASB Accounting Standards Codification
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