Changes to the Disclosure Requirements for Fair Value Measurement

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Michelle L. Steinbronn, CPA

Earlier this year, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, as part of its disclosure framework project. The objective of the project is to improve the effectiveness of disclosures in the notes to the financial statements. Several removals, modifications, and additions have been made to the fair value measurement standard (Topic 820) under this ASU.

Disclosures Removed

The following disclosures have been removed from Topic 820:

  • 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 processes for Level 3 fair value measurements; and
  • For nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period.

Disclosures Modified

The following disclosures have been modified in Topic 820:

  • In lieu of a roll-forward for Level 3 fair value measurements, nonpublic entities are 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, entities are required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and
  • The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

Disclosures Added

The following disclosures have been added to Topic 820: however, they are not required for nonpublic entities:

  • The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and
  • The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

In addition, the amendments eliminate at a minimum from the phrase an entity shall disclose at a minimum to promote the exercise of discretion in fair value measurement disclosures and to clarify that materiality is an appropriate consideration when evaluating disclosure requirements.

Effective Date

The guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date.

Early adoption of any removed or modified disclosure is permitted as well as delaying the adoption of additional disclosures until their effective date.

For more information and to download the full text of the ASU please visit www.fasb.org.