What is the diference between availbalble for sale and held for sale?
Under GAAP you can reverse impairements on held for sale , but you cant on available for sale . Whats is the major difference between the two.
What’s “held for sale”? I’m not familiar with that classification. Does that mean a trading security?
I’m only familiar with:
Trading security
Available for sale
Held to maturity
Anyway, besides the financial statement treatment of the different classification of assets, the only major difference is management’s intent. Also, equity securities can never be held to maturity, because they never mature.
The concept of impairment doesn’t really exist in AFS securities. You’re reporting the fair value of it at reporting date, which can be a gain or loss.
i think he must mean held to maturity. if you own a GM corp bond or greek sovereign debt and you need to mark it down. Where does it go? can it be reversed? I would think such a scenario would be in P&L and not OCI since realized. Anyone know for sure?
AFS - unrealized in OCI until sold, then realized.
GAAP doesn’t allow reversal of impairment of HTM. Impairment taken at each reporting period.
take the gain when realized, if the market goes back up.
Still, I don’t think OP is asking about how to treat losses on financial statements. He is asking why is an asset classified one way instead of another. And that depends entirely on management’s intent.
Long lived fixed assets(as indicated in the Long live asset reading 21) that are “held for sale” can have their impairments reverse under US GAAP. Refer to page 48 book2 of the 2012 schweser notes
However financial assets e.g. stocks&bonds(as indicated in Intercorporate Investments reading 22) designated as “available for sale” can NOT have an impairment reverse under US GAAP.
Theres one more instance I found were impairments can be reverse under US Gaap but can’t recall at the moment.
Wow I could not go to sleep until I found that other instance where Impairments can be written back up under US GAAP.
Debt securities that are “Held to Maturity” can have their impairments written back up under US GAAP. That was the only other instance I found in the entire curriculum that allowed impairment reversals under US GAAP.
Securities that are AFS where the values are marked down (and the hit is taken in OCI) cannot be adjusted? So if in a following year the value increases the mark to market improves you are saying you cannot take the value up?
As for GAAP and HTM, the readings mention that if you do impair something there are consequences (but you can do it). I.e. if more than 2 instances of marking something down that was HTM within 2 reporting periods you can no longer classify something as HTM.
When a AFS secruity get’s impaired, the lost is reflected in the Income statment not OCI. Impaired dosn’t mean a change in Fair Market Value which is an unrealized gain/loss that’s reflected in OCI. Impaired means the security suffered a permanet loss event e.g. bond default of the issuer.
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Here’s the thing under US GAAP & IFRS, HTM(that are debt) securities can be revalued up again from an impairment.
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For AFS, only IFRS allows impaired DEBT securities to be revalued up from an impairment. Impaired Equity cannot be revalued up. Regular changes in Fair Market Value(due to market conditions) are always reflected in OCI when their unrealized and these period to period changes are NOT impairments.
From my understanding from the CFAI text is that AFS Equity is already held at fair value so an impairment is already reflected in the price.
Don’t mix up ‘held-for-sale’ and ‘available-for-sale’. They are two completely different things.
Held-for-sale asset is an asset the management no longer uses for its operational activities and is actively seeking a buyer or already is in the process of selling, as on the reporting date. Unlike IFRS, US GAAP normally doesn’t allow ‘write-ups’ once an asset has been written down from its carrying value BUT, this doesn’t apply to assets ‘held-for-sale’, meaning if their fair value increases, the entity may write up the asset to the extent it was written down previously. LOS 21.c
I stand corrected.
You can take an impairment on AFS (debt or equity) under GAAP - take the loss in income, however in future periods it is still an AFS security and needs to be marked to market. You are just not allowed to realize the gain in the IS until sold.
With IFRS equity, you take the impairment but are not allowed to reverse the loss in the IS (but still mark to market). As the above said, with IFRS debt you are allowed to revalue in the IS.