FASB Releases Pronouncement on Fair Value Disclosure Requirements

The Financial Accounting Standards Board (“FASB”) released Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.  This ASU refreshes the fair value disclosure requirements for all nonpublic companies in an effort to remove information that may have been previously misinterpreted and to provide better transparency to investors on estimates and assumptions used in valuations.  This ASU is effective for all reporting periods beginning after December 15, 2019, with early adoption permitted.

What’s been eliminated?

The ASU eliminates the following disclosure requirements:

  • Amount of and reasons for transfers between Level 1 and Level 2 investments
  • Timing policy for transfers between levels
  • Valuation process for Level 3 investments.  However, this does ASU does not remove the requirement to disclose unobservable inputs.
  • Change in unrealized gains and losses for the period included in earnings for Level 3 earnings
What’s changing?
  • Nonpublic entities (including benefit plans) no longer are required to prepare a Level 3 roll forward.  However, in lieu of this, transfers, purchases, and sales will be separately disclosed.
  • For investments in entities that calculate net asset value, companies will be required to disclose the estimated timing of liquidation of the investment’s assets if such information has been communicated to the reporting entity.
What does this mean for me?

If elected by you, the client, this guidance can be adopted immediately.  If you do not elect to early adopt, the guidance will need to be implemented in 2020.  While the face of your financial statements will not change, the footnotes will become more simplified.  Descriptions surrounding how investments are valued will be removed, while disclosures of unobservable inputs will remain.  For nonpublic plans, Level 3 roll forwards will be removed but will be replaced (if necessary) by a brief disclosure of purchases and sales of Level 3 investments.  A paragraph regarding new accounting pronouncements will be added to all reports, regardless of adoption in the current period or not.