5.3 Certain Groups of Assets and Liabilities With Offsetting Risk Positions
ASC 820-10
Application to
Financial Assets and Financial Liabilities With
Offsetting Positions in Market Risks or Counterparty
Credit Risk
35-18D A
reporting entity that holds a group of financial assets,
financial liabilities, nonfinancial items accounted for as
derivatives in accordance with Topic 815, or combinations of
these items is exposed to market risks (that is, interest
rate risk, currency risk, or other price risk) and to the
credit risk of each of the counterparties. If the reporting
entity manages that group of financial assets, financial
liabilities, nonfinancial items accounted for as derivatives
in accordance with Topic 815, or combinations of these items
on the basis of its net exposure to either market risks or
credit risk, the reporting entity is permitted to apply an
exception to this Topic for measuring fair value. That
exception permits a reporting entity to measure the fair
value of a group of financial assets, financial liabilities,
nonfinancial items accounted for as derivatives in
accordance with Topic 815, or combinations of these items on
the basis of the price that would be received to sell a net
long position (that is, an asset) for a particular risk
exposure or paid to transfer a net short position (that is,
a liability) for a particular risk exposure in an orderly
transaction between market participants at the measurement
date under current market conditions. Accordingly, a
reporting entity shall measure the fair value of the group
of financial assets, financial liabilities, nonfinancial
items accounted for as derivatives in accordance with Topic
815, or combinations of these items consistently with how
market participants would price the net risk exposure at the
measurement date.
As discussed in Section 4.3.2, the unit of
valuation for financial assets, nonfinancial derivative assets, all liabilities, and
equity instruments is generally the individual instrument, which is generally also
its unit of account under other GAAP. As stated in Section 5.2.1, the concept of the highest and best use does not
apply to financial assets, nonfinancial derivative assets, liabilities, or
instruments classified in stockholders’ equity.
An exception to ASC 820’s general principles related to the unit of
valuation is available for groups of financial assets, financial liabilities, and
nonfinancial items accounted for as derivatives in accordance with ASC 815. if an
entity (1) manages the group of assets and liabilities on the basis of net exposure
to a market risk (or risks) or counterparty credit risk, (2) provides information on
that basis to management, and (3) measures those assets and liabilities at fair
value in the statement of financial position. ASC 820-10-35-18D discusses this
exception.2
An entity must elect the exception as an accounting policy and
consistently apply it from period to period for a particular portfolio. See
Section 10.2.8.1
for further discussion of the application of this portfolio valuation exception.
Footnotes
2
See Section 10.4.4 for discussion of the use of mid-market
pricing as a practical expedient.