2435.1 ASC 825 Fair Value Option - Background - S-X 3-09 and S-X 4-08(g) did not contemplate the fair value option. Those rules were put in place to provide presumptive disclosure thresholds for separate financial statements and/or summarized financial information of entities accounted for using the equity method, consistent with the requirements of ASC 323-10-50-3c. ASC 825 requires, in part, that companies electing the fair value option for an investee comply with the disclosure requirements in ASC 323-10-50-3c.
2435.2 ASC 825 Fair Value Option — Presumptive Disclosure Thresholds for Summarized Financial Information and Separate Financial Statements of Investees - The staff believes that the significance tests in S-X 3-09 and S-X 4-08(g), as modified below, provide analogous guidance for the ASC 825 requirement to comply with the disclosure requirements in ASC 323-10-50-3c. In applying the S-X 3-09 and S-X 4-08(g) disclosure thresholds to investments that would have been accounted for under the equity method had the fair value option not been elected by the registrant, the staff believes that the income test should be computed using as the numerator the change in the fair value reflected in the registrant's statement of comprehensive income rather than the registrant's equity in the earnings of the investee computed as if the equity method had been applied. If a registrant believes that applying the guidance in S-X 3-09 and S-X 4-08(g) by analogy as described above results in a requirement to provide more information than is reasonably necessary to inform investors, the registrant may request relief.
2435.3 ASC 825 Fair Value Option — MD&A Disclosure of Methods and Assumptions Used to Determine Fair Value - The staff also cautions registrants that investees accounted for using the fair value option may be material at levels below the disclosure thresholds in S-X 3-09 and S-X 4-08(g). When investees accounted for using the fair value option are material to an understanding of results of operations, financial position, or cash flows, registrants should consider whether qualitative and quantitative analysis in MD&A is required by S-K 303, whether or not the investee's separate financial statements are provided and/or the registrant's financial statement footnotes include the investee's summarized financial information. Specifically, registrants should consider describing in MD&A the methods and underlying assumptions used in determining fair value, and analyzing the effects of any changes therein from the previous period(s). Registrants should be mindful that such an analysis may be necessary even when material changes in significant assumptions have offsetting effects.
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