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Consolidated Reporting Amendments Deal with Fair Value Guidance for Some Off-Balance-Sheet Vehicles

The FASB amended its consolidated reporting guidance for businesses and other organizations that have to report their investments in a type of off-balance-sheet vehicle called a collateralized financing entity by using the accounting for variable interest entities. The FASB said reporting entities that consolidate a collateralized financing entity can measure the off-balance-sheet vehicle’s financial assets and liabilities using either the fair value guidance in U.S. GAAP or an alternative the accounting board provided with its update to the consolidated reporting guidance.

The FASB published Accounting Standards Update (ASU) No. 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (a consensus of the FASB Emerging Issues Task Force), on August 5, 2014.

The amendments will become effective for public companies for fiscal years that begin after December 15, 2015. The FASB said the changes should be used for first-quarter reports in 2016. Private companies, not-for-profit organizations, and other groups will begin using the new accounting a year later.

The FASB said it’s permissible to apply the amendments ahead of the effective date at the start of a fiscal year.

The amendments apply to businesses and other organizations that have to include their investments in a type of off-balance-sheet vehicle called a collateralized financing entity by using the variable interest entity Subsections of Subtopic 810-10, Consolidation. Topic 810 requires a collateralized financing entity to appear on its parent’s balance sheet if the parent is the primary beneficiary of the entity.

A collateralized financing entity holds financial assets and issues beneficial interests in the assets. The interests have recourse only to the related financial assets of the collateralized financing entity and are classified as financial liabilities.

In ASU No. 2014-13, the FASB said reporting entities that consolidate a collateralized financing entity can measure the off-balance-sheet vehicle’s financial assets and liabilities using either Topic 820, Fair Value Measurement, (formerly SFAS No. 157), or an alternative included in ASU No. 2014-13. With the alternative, the off-balance-sheet vehicle’s financial assets and liabilities will be measured using the more observable of the fair value of the financial assets and the fair value of the financial liabilities.

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