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Investments in debt instruments that meet the definition of a financial asset include government and corporate bonds, beneficial interests in securitization entities, commercial loans, residential and commercial mortgages, installment loans, lease payments and certain guaranteed residual values under sales-type and direct finance leases, and credit card and trade receivables. Investments in equity interests, such as shares of common or preferred stock, also are financial assets.
Figure TS 1-2 lists various instruments, contracts, and agreements considered financial assets within the scope of ASC 860.
Figure TS 1-2
Examples of recognized financial assets
Installment loans, mortgage loans, commercial loans, and credit card and trade receivables
Receivables and loans of all types are considered financial assets because they represent a contract that conveys to their holder a contractual right to receive cash or another financial instrument from another entity.
Investments in debt securities
A debt security is a financial asset because it conveys to its holder a contractual right to receive cash or another financial instrument from the security’s issuer.
Beneficial interests issued by a securitization trust
Beneficial interests are considered financial assets because they convey to the holder a contractual right to receive cash or another financial instrument from the issuing trust. Whether the trust holds financial assets or nonfinancial assets (e.g., title to automobiles) does not alter this conclusion.
Non-controlling investments in common stock or other forms of ownership interests accounted for at fair value or under the equity-method
Irrespective of how they are measured, investments in common stock or other forms of equity interests are ownership interests, and thus are financial assets. Therefore, transfers of these assets, including equity method investments, are accounted for in accordance with ASC 860.

However, if the investments are promised to a counterparty in a contract along with other nonfinancial assets, and substantially all the fair value of the promised assets is concentrated in the nonfinancial assets, the investments are scoped out of ASC 860 and may be within the scope of ASC 610-20.
Ownership interest in a non-consolidated subsidiary (controlled investee) carried at fair value
Investments in controlled subsidiaries carried at fair value according to industry practice (e.g., an investment company) are considered financial assets, as the holder will realize its investment by disposing of it.
Derivative assets that are not financial assets, such as a physically settled commodity forward contract
Transfers of assets that are derivative instruments subject to ASC 815, but are not financial assets, are governed by ASC 860. See ASC 815-10-40-2 for further details.
Forward contract on a financial instrument that must be (or may be) physically settled
Forward contracts on financial instruments in an asset position can be a financial asset because they convey a contractual right (a) to receive cash or another financial instrument from another entity or (b) to exchange other financial instruments on potentially favorable terms with the other entity.
Receivables arising from sales-type and direct-financing leases
Sales-type and direct-financing lease receivables are considered financial assets because they arise from a contract (the lease) that conveys to the lessor a contractual right to receive cash or another financial instrument from the lessee.
Lease residual value guaranteed at commencement of a lease
The residual value of a leased asset guaranteed at the lease’s commencement is a financial asset. See ASC 860-10-55-6.
Legal settlements-contractual payment plan
The analysis of legal settlements depends on facts and circumstances. If the right to payments has been reduced to a contract enforceable by a government or a court of law, the arrangement is a financial asset.
Question TS 1-1 discusses a transaction within the scope of ASC 860.
Question TS 1-1
Finance Co originates unsecured consumer loans. Loans written off as uncollectible are periodically pooled and sold to a collection agency. Bank Co receives a cash payment at the transfer date, and is entitled to receive additional consideration if the transferred pool subsequently generates a return above a hurdle rate.
Does ASC 860 apply to these transfers?
PwC response
Yes, ASC 860 applies to these transfers. Although the transferred loans have no carrying value at the transfer date, the loans represented recognized financial assets when originated by Finance Co. Despite the subsequent write off, the credit agreement (contract) underlying each origination remains in effect. In our view, the write off stems from Finance Co’s application of a measurement convention and, as such, should not be considered to alter the initial characterization of the loan as a recognized financial asset. The transfer of a written-off loan should be analyzed no differently than the conveyance of loan having a remaining (recognized) cost basis that has been fully reserved in a contra account for loan losses.

1Under ASC 610-20, entities will no longer “look through” equity method investments to determine if the underlying assets should be accounted for under other guidance, as was previously required under the real estate-specific guidance.

2Assets that have the potential to be financial assets or financial liabilities, such as forwards and swaps, must meet the criteria of both ASC 860 and ASC 405-20-40-1 in order to be derecognized.


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