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Journal Entry — EITF — FASB Issues Three Proposed ASUs in Response to EITF Consensuses Reached in June

Published on: Jul 24, 2013

The FASB recently issued the following proposed Accounting Standards Updates (ASUs) in response to consensuses-for-exposure reached at the EITF’s June meeting (see Deloitte’s June EITF Snapshot for more information):

Comments on the proposed ASUs are due by September 17, 2013. Each proposal is summarized below.

Proposed ASU on Measuring the Financial Liabilities of a Consolidated Collateralized Financing Entity

Under this proposal, entities that measure the financial assets of a consolidated collateralized financing entity (CFE) at fair value would be permitted to use the fair value of the financial assets to measure the financial liabilities of that CFE, thereby eliminating diversity in current practice related to the accounting for differences between the fair value of a CFE’s financial assets and the fair value of its liabilities.

The term “collateralized financing entity” would also be added to the FASB Accounting Standards Codification Master Glossary and defined as follows:

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 recourse to the related financial 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.


The proposal specifies that an entity that elects or is required to measure the financial assets of a consolidated CFE at fair value could elect to use, at initial and subsequent measurement, the following formula to measure that CFE’s  financial liabilities:

1.   The sum of the following two amounts:

a.   The fair value of the financial assets held by the collateralized financing entity

b.   The carrying value of any nonfinancial assets held by the collateralized financing entity

2.   Less the sum of the following two amounts:

a.   The sum of the fair value of financial assets and the carrying value of nonfinancial assets attributable to the beneficial interest owned by the reporting entity

b.   The carrying value of any beneficial interests that represent compensation for services rendered by the reporting entity.

The proposed ASU would also prohibit entities from electing to use the fair value option in ASC 8254 to measure a consolidated CFE’s financial liabilities.

Disclosures and Transition

The CFE’s financial assets would still be subject to the fair value disclosure requirements under ASC 820 and ASC 825. Its financial liabilities would not be subject to those disclosure requirements; however, the entity would have to disclose that the financial liabilities were measured at an amount based on the fair value of the CFE’s financial assets.

For public entities, the guidance would be effective for fiscal years beginning after December 15, 2013, and interim periods therein. For nonpublic entities, it would be effective for fiscal years beginning after December 15, 2014, and interim and annual periods thereafter. However, the Board will redeliberate these effective dates at a future EITF meeting.

Entities would use a modified retrospective approach to remeasure the financial liabilities as of the beginning of the year of adoption and thus would potentially need to make a cumulative-effect adjustment to beginning retained earnings. However, entities that previously measured a consolidated CFE’s financial assets and financial liabilities at fair value would be permitted to apply the ASU’s guidance retrospectively. Such entities would be required to apply the proposed ASU's measurement guidance to a CFE's financial liabilities previously measured at fair value as of the date of adoption. An entity that did not previously elect to measure a CFE’s financial assets at fair value could do so upon the ASU’s adoption. If so, the entity would be required to use the above formula to measure liabilities. However, the entity would then be prohibited from applying the ASU retrospectively. Any amount previously recorded to appropriated retained earnings would potentially need to be reclassified in accordance with the applicable transition method.

Proposed ASU on Service Concession Arrangements

This proposed ASU applies to private-sector (or operating) entities that enter into certain service concession arrangements, which include contractual agreements with a public-sector entity (the “grantor”) to construct, upgrade, or operate the grantor’s infrastructure to provide public services (e.g., toll roads, airports). Under the proposal, operating entities would be prohibited from accounting for service concession arrangements that are within the proposal’s scope as a lease. Both of the following must be present for a service concession arrangement to be within the proposal’s scope:

  • “The grantor controls or has the ability to modify or approve the services that the operating entity must provide with the infrastructure, to whom it must provide them, and at what price.”
  • “The grantor controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.”


The ASU’s guidance would be applied on a modified retrospective basis. All service concession arrangements existing at the beginning of an entity’s fiscal year of adoption and accounted for as a lease would be reclassified to an appropriate accounting alternative, and any cumulative effect would be recorded as an adjustment to beginning retained earnings of the period of adoption.

Proposed ASU on Reclassification of Collateralized Mortgage Loans Upon a Troubled Debt Restructuring

This proposed ASU affects entities that hold consumer loans collateralized by residential real estate properties (i.e., mortgage loans) and thus would particularly affect banks. Under the proposal, an entity would be required to reclassify mortgage loans to other real estate owned, and therefore to measure the asset at an amount commensurate with the accounting classification and valuation techniques applicable to property, when either of the following conditions exists:

  • “The creditor obtain[s] legal title to the residential real estate property.”
  • “Completion of a deed in lieu of foreclosure or similar legal agreement . . . conveys all interest in the residential real estate property to the creditor to satisfy that loan.”

Disclosures and Transition

Entities would be required to present a reconciliation of the beginning and ending balances related to loans reclassified as residential real estate property that meets both of the above conditions. They would also need to disclose the amount of consumer mortgage loans that are formally in the foreclosure process.

A modified retrospective approach would be used to reclassify mortgage loans backed by residential real estate property that meet one of the above two conditions as “real estate owned.” Conversely, entities would reclassify real estate owned that does not meet these conditions as “mortgage loans.” The reclassification, if any, would apply to all such loans and property existing as of the date of adoption. Any difference in the measurement of the reclassified assets would be reflected as an adjustment to the beginning balance of retained earnings of the period of adoption.

[1]    EITF Issue No. 12-G, “Accounting for the Difference Between the Fair Value of Assets and Fair Value of Liabilities of a Consolidated Collateralized Financing Entity.”

[2]    EITF Issue No. 12-H, “Accounting for Service Concession Arrangements.”

[3]    EITF Issue No. 13-E, “Reclassification of Collateralized Mortgage Loans Upon a Troubled Debt Restructuring.”

[4]    For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s "Titles of Topics and Subtopics in the FASB Accounting Standards Codification."

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