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Section 4240: Fair Value Option
[U.S. GAAP Codification Topic]
825: Financial Instruments - Fair Value Option
825-10 Overall
[U.S. GAAP before the Codification]
SFAS 155: FVO for hybrid instruments
SFAS 156: FVO for servicing assets (SA) and servicing liabilities (SL)
SFAS 159: FVO for all financial assets (FA) and financial liabilities (FL)
SFAS 155, February 2006, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140
SFAS 156, March 2006, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140
SFAS 159, February 2007, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statements No. 115
1. Fair Value Option(FVO)
--> Option to measure eligible items at fair value
2. Eligible items: asc 825-10-15-4
(1) Financial assets and financial liabilities
--> except the items not eligible listed in asc 825-10-15-4
(2) Other eligible items listed in asc 825-10-15-4
3. Items not eligible: asc 825-10-15-5
(1) Investment in a subsidiary to be consolidated
(2) Investment in a Variable Interest Entities (VIE) to be consolidated
(3) Other items listed in asc 825-10-15-5
4. Election of FVO
(1) FVO is applied "instrument by instrument."
(2) FVO is elected when the eligible item is "first recognized."
5. Once FVO is elected
--> the decision is "irrevocable."
6. Items Fair Value Option was elected for are
(1) Measured at "fair value"
(2) Unrealized gains and losses are recognized in "earnings."
7. FVO may be elected for the following:
(1) Investment in HTM securities
(2) Investment in AFS securities
(3) Investment in equity securities for "equity method"
--> 20% or more, but no more than 50% of ownership
(4) Financial liabilities
HTM: Held-to-Maturity
AFS: Available for Sale
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