rter of 2013, the company began investing in GSE CRTs issued by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac). The company applied what it believed to be appropriate accounting guidance (FASB ASC 320 Investments – Debt Securities or “ASC 320”) to its GRE CRT assets as reported in its consolidated financial statements. Based on discussions with peer companies and third party advisors commencing in late June 2015, the company initiated a thorough review of its GAAP accounting treatment of GSE CRTs. Following the review, management determined that it should have applied the guidance of FASB ASC 815 – Derivatives and Hedging or “ASC 815.” Under ASC 815, changes in fair value of the embedded credit derivative will be recorded in “other income” on the consolidated statement of operations, instead of in “other comprehensive income” on the consolidated balance sheet.
Knowing when to apply hedge accounting is just as important as knowing how to apply it. FASB interpretations can be intimidatingly complex. Even a market-leading REIT like Invesco couldn’t find the right answer on its own or get the independent expertise needed…until it was too late.
One of DerivActiv’s most popular services is independent hedge accounting review. This is why.