Why this is mistaken
An AFS decline below amortized cost can contain a credit layer and a noncredit fair-value layer. They do not have the same reporting destination. The supported credit amount affects the allowance and earnings. The qualifying residual change affects OCI, while the asset is reported at fair value.
Use a bond with $488,550.73 of amortized cost, $470,000 of fair value, and a supplied $3,000 credit allowance. Recording the full $18,550.73 decline in either earnings or OCI shows the error. The corrected bridge records $3,000 in the credit layer and $15,550.73 as the noncredit OCI loss. The fair-value decline alone does not estimate credit loss; the credit memorandum remains separate evidence.
Where to watch
When this mistake may appear
- An AFS bond falls below amortized cost.
Check your work
Your work may contain this mistake if:
- Call the total decline impairment without a credit bridge.