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October 22, 2018

How Investment Fund Managers Can Make Fair Value Disclosures More Useful (article)

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Investment fund managers should be aware of upcoming changes to the fair value measurement framework that will simplify the current fair value disclosure requirements. The FASB recently issued Accounting Standards Update (ASU) 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which is designed to make fair value disclosures align with the recently issued concept statement for notes to the financial statements. The applicability of the revisions contained in ASU 2018-13 differ for public and nonpublic entities. Nonpublic investment fund managers should consider the following upcoming changes to the disclosure requirements per ASU 2018-13:

  • Nonpublic entities are no longer required to disclose a rollforward of assets and liabilities valued using Level 3 fair value inputs. Rather, the standard has been modify to require separate disclosure of purchases, issues, transfers into Level 3 and transfers out of Level 3 without the need to rollforward the balance from prior year end to current year end.
  • U.S. GAAP requires entities to develop and consistently apply a policy for transfers between fair value hierarchy levels. Entities must continue with this practice but are no longer required to disclose the policy for transfers in the footnotes to the financial statements.
  • Currently, entities are required under ASC 820-10-50-2(f) to provide a description of the valuation process used to value recurring and nonrecurring fair value measurements categorized within Level 3 of the fair value hierarchy. ASU 2018-13 removes this requirement.
  • Nonpublic entities are no longer required to disclose unrealized gains and losses associated with Level 3 assets and liabilities held at the end of the reporting period.
  • For entities that hold assets that are valued at the net asset value per share or its equivalent, the disclosure requirements have been modified such that disclosure of the timing of liquidation of an investees assets and the date when restrictions from redemption might lapse are only required to be disclosed if the investee has communicated the timing to the entity or made a public announcement.

Adoption and Effective Date

ASU 2018-13 is effective for fiscal years, including interim periods within, beginning after Dec. 15, 2019 (Dec. 31, 2020 calendar year-end). The provisions of the ASU are available for early adoption at any time and we expect some nonpublic investment fund managers to adopt these rules in their Dec. 31, 2018 financial statements.

For More Information

If you have specific comments or questions about ASU 2018-13, please contact us.

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