ASU 2009-12 Investments in Certain Entities That Calculate Net Asset Value per Share
This accounting standard update has been issued as a practical expedient for investments in alternative investments that do not have a readily determinable fair value, the investees have the attributes of investment companies and the net asset values (NAV) or their equivalents are calculated consistent with the AICPA Audit and Accounting Guide, Investment Companies. If these conditions apply, the investor can use the NAV as the fair value of the investment without any adjustments. Generally assets in pension and other “trusts” fall under this practical expedient. The ASU is effective for periods ending after December 15, 2009, and will need to be added to the 2009 10K for calendar year-end companies.
What level of the fair value hierarchy do investments valued using the NAV fall under?
Investments valued using the NAV should be classified as either a Level 2 or a Level 3 input. If an entity can redeem its investment with the investee at the NAV at the measurement date, then it should be classified as a Level 2 input. If the entity can never redeem the investment with the investee at the NAV, then it would be considered a Level 3 input. If the entity can redeem the investment with the investee at some time in the future, then judgment is needed to determine if it should be a Level 2 or a Level 3 input.
What are the new disclosures?
The following disclosures are to be made for all debt and equity securities that are valued using the NAV. These securities are to be presented by major category or major security type.
1. Fair Value
2. Significant investment strategies
3. Amount of unfunded commitments
4. Terms and conditions upon which the investor may redeem the investment
5. The circumstances under which an investment may not be redeemable and when the restriction from redemption might lapse
6. For investments that can never be redeemed, an estimate of the period of time over which the underlying assets are expected to be liquidated by the investees
7. Any other significant restriction on the ability to sell the investment
8. If it is probable that the investment will be sold at an amount different from the NAV, the amount at which the investment will be sold
Example of the new disclosure to be added to 2009 10K:
Net Asset Value per Share
The following table discloses the fair value and redemption frequency for those assets whose fair value is estimated using the net asset value per share as of December 31, 2009.
Fair Value Estimated using Net Asset Value per Share
Fair Value (in millions)
Redemption Notice Period
Money Market Mutual Fund (a)
Equity Securities (b)
Debt Securities (c)
Multi-Strategy Fund (d)
(a) This category includes investments in high-quality, short-term securities. Investments in this category can be redeemed immediately at the current net asset value per share.
(b) This category includes investments in hedge funds representing a Standard & Poors' 500 Index and the Morgan Stanley Capital International (MSCI) US Small Cap 1750 Index and private equity funds. Investments in this category can be redeemed quarterly with a 60 day written notice at the current net asset value per share.
(c) This category includes investments in U.S. Treasury obligations and U.S investment grade bonds. Investments in this category can be redeemed quarterly with a 60 day written notice at the current net asset value per share.
(d) This category includes investments in stocks, bonds and short-term investments in a mix of actively managed funds. Investments in this category can not be redeemed except through liquidation of the fund.