On 4 December 2017, Robert B. Sledge of the SEC's Office of the Chief Accountant provided some remarks before the 2017 AICPA Conference on current SEC and PCAOB developments.

The two following points were addressed:

  • General expected credit losses approach versus approaches for collateral dependent loans: The SEC recommends that, should foreclosure be likely to occur for collateral-dependent financial assets, a company should evaluate the expected losses by analysing such collateral's fair value. However, in the event that a company discovers that such asset is collateral-dependent, but foreclosure is not likely to occur, a practical expedient may be applied to measure expected credit losses based on the fair value of the collateral.
  • Scope of PCI loans and PCD financial assets: Two pre-filing consultations were discussed to draw attention to the change from the purchased credit impaired (PCI) model to the purchased credit deteriorated (PCD) model under the new credit losses standard:

    • Application of the PCI model by analogy. A registrant acquired defaulted, discounted unsecured assets, and concluded that those transfers did not comply with the requirements of Topic 860 regarding the sale accounting. Consequently, he accounted for the transactions as the origination of new loans that are collateralized by the defaulted receivables. The Staff considered that Subtopics 310-10 and 310-20 "provided applicable and on-point guidance" for originated loans, and consequently such application of the PCI model by analogy was put into question.
    • Application of the PCD model. A registrant purchased consumer instalment loans immediately after they were originated by a retailer in connection with the sale of goods. These assets did not qualify for the PCD model according to the SEC, due to the fact that the credit deterioration in connection with the purchased loans must be observed at the date of initial recognition.

The remarks of Mr. Sledge are available at:

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