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FASB Issues Guidance on Consolidated Collateralized Financing Entities

Issued by the Financial Accounting Standards Board (“FASB”), Accounting Standards Update (ASU) No. 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity, applies to any reporting entity required to consolidate a collateralized financing entity under the Variable Interest Entities guidance when:

(1) the reporting entity measures all of the financial assets and the financial liabilities of that consolidated collateralized financing entity at fair value in the consolidated financial statements; and

(2) the changes in the fair values of those financial assets and financial liabilities are reflected in earnings.

As defined under U.S. GAAP, the financial assets of a collateralized financing entity’s fair value could vary from the fair value of its financial liabilities. Prior to ASU No. 2014-13, there was guidance on how to account for that difference. ASU 2014-13 provides an alternative to the current fair value literature.

ASU No. 2014-13 is effective for public business entities for annual periods, and interim periods within, starting after December 15, 2015. For other entities, the amendments are effective for annual periods ending after December 15, 2016, and interim periods following December 15, 2016.

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