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A collateralized financing entity, or CFE, is defined in the ASC Master Glossary.

Definition from the ASC Master Glossary

Collateralized Financing Entity: A variable interest entity that holds financial assets, issues beneficial interests, 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).

Collateralized loan obligations and other securitization vehicles are example of CFE’s.
Consolidators of CFE’s often elect the fair value option for the financial assets and liabilities to avoid accounting mismatches caused by financial asset impairments. Because the fair value of the CFE’s financial assets and financial liabilities are measured independently, the periodic remeasurement can produce net gains (losses) each period not attributable to the beneficial interests held by the primary beneficiary. Although the recourse for a holder of a CFE’s financial liabilities (beneficial interest holder) may be limited to the financial assets within the CFE, and the financial assets of the CFE may only be used to settle its financial liabilities, the methodologies and inputs used to separately fair value the financial assets and financial liabilities may produce different values for each.
The change was driven by concerns expressed by stakeholders that the income statement volatility arising from the different measurements of financial assets and liabilities did not provide decision-useful information, as it did not reflect the actual economic risks to which the reporting entity was exposed.

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