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NFPs can make accounting policy elections to measure certain investments at fair value when a different measurement basis otherwise is required by GAAP. For example, the “Fair Value Option” subsections of ASC 825-10 can be elected in order to measure certain investments at fair value as an alternative to applying the equity method (or cost method, prior to adoption of ASU 2016-01). All NFPs are eligible to use this instrument-by-instrument option, which is further discussed in FV 5.
In addition, NFPs (except for NFP HCOs within the scope of ASC 954) can use an NFP-specific option that applies to portfolios of investments, rather than to individual investments. If that election is made for a portfolio, all eligible investments within it for which a measurement basis other than fair value would be required are reported at fair value. Often referred to as the portfolio-wide fair value option (PWFVO), it facilitates the reporting and administration of investment portfolios for which a total-return investing strategy is used (for example, endowment portfolios).
The PWFVO’s scope is limited to investments entered into for purposes of earning investment return. It cannot be applied to investments entered into in connection with carrying out the NFP’s operating activities (for example, participation in joint ventures). The election is “all or nothing” with respect to a portfolio; an NFP cannot choose to report some of the eligible investments within the portfolio at fair value while excluding others.
Figure NP 9-2 contrasts the PWFVO to the ASC 825-10 general fair value option (FVO).
Figure NP 9-2
Comparison of NFP portfolio-wide fair value option to ASC 825-10 fair value option
NFP PWFVO (ASC 958)
General FVO (ASC 825-10)
  • Cannot be applied by NFP HCOs
  • Can be applied by all NFPs
  • Can only be applied to investments that are part of a portfolio held to generate investment return
  • Cannot be used to measure interests in investees that are part of the NFP’s operating activities (e.g., interests in joint ventures)
  • Can be applied to any investment that is a financial asset
  • Can be applied to investments in nonfinancial assets (e.g., real estate)
  • Limited to investments that are financial assets
  • Can be applied to interests in limited partnerships that otherwise would require consolidation
  • Cannot be applied to any other form of controlling investment
  • Cannot be applied to any investment that would otherwise require consolidation
  • Applies to all eligible investments within a portfolio – no “cherry-picking”
  • Instrument-by-instrument election
  • Accounting policy decision that may be changed, subject to the guidance in ASC 250, Accounting Changes, concerning preferability
  • Election is irrevocable

For more information on specific accounting implications of the PWFVO, see NP 9.3.1.

9.3.1 Investments eligible for the portfolio-wide fair value option

The portfolio-wide fair value option is described in ASC 958-810-15-4(e). The following types of investments are eligible for fair value measurement under the portfolio-wide option:
  • All limited partnership interests (i.e., both general partner and limited partner interests) for which consolidation or application of the equity method would otherwise be required
  • Noncontrolling equity interests in entities other than limited partnerships for which application of the equity method would otherwise be required. Controlling financial interests in entities other than limited partnerships must be consolidated.
  • Nonfinancial investments such as real estate (see ASC 958-325-15-2)
For all other equity interests, measurement at fair value is required by ASC 321 and thus, the fair value option is not needed.

9.3.1A Investments eligible for the portfolio-wide fair value option (prior to adoption of ASU 2016-01)

Prior to the effective date of ASU 2016-01, the portfolio-wide option is established by an accounting policy choice described in NP 9.2.3A.
The following types of investments are eligible for fair value measurement under the portfolio-wide option:
  • All limited partnership interests (that is, both general partner and limited partner interests) for which consolidation or application of the equity method would otherwise be required
  • Noncontrolling equity interests in entities other than limited partnerships for which application of the equity method would otherwise be required. (Controlling financial interests in entities other than limited partnerships must be consolidated.)
  • Equity interests without readily determinable fair values that are not accounted for under the equity method or required to be consolidated (that is, equity interests within the scope of ASC 958-325, Other investments)
  • Nonfinancial investments such as real estate (see ASC 958-325-15-2)
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