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FASB Makes Push to Improve Fair Value Measurement Disclosures

Dec 7th 2015
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As part of its ongoing disclosure framework project, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update on Dec. 3 that would modify disclosure requirements for fair value measurements and allow organizations to determine their materiality.

The proposal would remove, modify, or add nine disclosures in Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The FASB makes clear that the proposed amendments' language fosters “the use of discretion by entities that reinforces that an entity can assess disclosures on the basis of whether they are material, thereby improving the effectiveness of the notes to financial statements.”

However, it's worth noting the latest proposal incorporates the option to exclude immaterial information that also was stated in the exposure draft, Notes to Financial Statements (Topic 235),Assessing Whether Disclosures Are Material, which was issued in September. Topic 235 intends to promote the appropriate use of discretion by organizations when deciding which disclosures should be considered material in their particular circumstances.

But the FASB mentions that those specific amendments are subject to reconsideration after the Topic 235 comment period closes on Dec. 8.

The amendments proposed by the FASB on Dec. 3 would affect all organizations that are required to make disclosures under existing US GAAP about recurring or nonrecurring fair value measurements.

The board wants feedback on the application of the proposal to private companies, employee benefit plans, and not-for-profit organizations. Comments are due by Feb. 29, 2016. Instructions on how to submit comments are included in the exposure draft.

Under the proposal, the following four disclosure requirements would be removed:

  • The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.
  • The policy for timing of transfers between levels.
  • The valuation policies and procedures for Level 3 fair value measurements.
  • For private companies, the change in unrealized gains and losses for the period included in earnings (or changes in net assets) on recurring Level 3 fair value measurements held at the end of the reporting period.

The following three disclosures would be modified:

  • Private companies would no longer be required to reconcile the opening balances to the closing balances of recurring Level 3 fair value measurements. However, private companies would be required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
  • For investments in certain entities that calculate net asset value, require disclosure of the timing of liquidation of an investee's assets and the date when restrictions from redemption will lapse only if the investee has communicated the timing to the entity or announced the timing publicly.
  • Clarify the measurement uncertainty disclosure to communicate information about the uncertainty in measurement as of the reporting date rather than information about sensitivity to changes in the future.

These two disclosures would be added to Topic 820 but would not apply to private companies:

  • The changes in unrealized gains and losses for the period included in other comprehensive income and earnings (or changes in net assets) for recurring Level 1, Level 2, and Level 3 fair value measurements held at the end of the reporting period, disaggregated by level of the fair value hierarchy.
  • For Level 3 fair value measurements, the range, weighted average, and time period used to develop significant unobservable inputs.

The FASB indicates that the amendments would take effect on changes in unrealized gains and losses, and range, weighted average, and time period used to develop Level 3 significant unobservable inputs would be required only for the most recent interim or annual period presented in the initial fiscal year of adoption. The other proposed amendments would apply retrospectively to all periods presented. The actual effective date will be established after the board considers feedback on the proposal.

Related article:

New FASB Proposals Aimed at Clarifying Materiality


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