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ASC 810-10-15-17D provides an alternative for measuring the financial assets and financial liabilities of a collateralized financing entity that is consolidated by a reporting entity. The ASC Master Glossary provides the following definition of a collateralized financing entity.

Definition from ASC Master Glossary

Collateralized Financing Entity: A variable interest entity that holds financial assets, issues beneficial interests in those financial assets, and has no more than nominal equity. The beneficial interests have contractual recourse only to the related assets of the collateralized financing entity and are classified as financial liabilities. A collateralized financing entity may hold nonfinancial assets temporarily as a result of default by the debtor on the underlying debt instruments held as assets by the collateralized financing entity or in an effort to restructure the debt instruments held as assets by the collateralized financing entity. A collateralized financing entity also may hold other financial assets and financial liabilities that are incidental to the operations of the collateralized financing entity and have carrying values that approximate fair value (for example, cash, broker receivables, or broker payables).

When a reporting entity elects the fair value option, financial assets and financial liabilities of the entity must be measured separately at their fair values. As a result, the aggregate fair value of the financial assets may differ from the aggregate fair value of the financial liabilities. The guidance allows the use of the more observable of the fair value of the financial assets or the fair value of the financial liabilities of the collateralized financing entity to measure both. As a result, this alternative would eliminate the measurement difference that may exist when the financial assets and financial liabilities are measured independently at fair value.
If the new measurement alternative is not elected, reporting entities will have to reflect any measurement differences between the collateralized financing entity’s financial assets and third party financial liabilities in earnings and attribute those earnings to the controlling equity interest in the consolidated income statement.
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