Changes Coming to Fair Value Disclosures for Investment Companies

By Adrian M. Schrock, CPA, and Sal (Kislay) Shah, CPA
11/8/2018
Changes Coming to Fair Value Disclosures for Investment Companies
On Aug. 28, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” to remove, modify, and add to existing fair value measurement disclosures requirements. The issuance is part of the FASB’s disclosure framework project, which intends to improve the effectiveness of disclosures by facilitating clear communication of information that is most important to the users of the financial statements. 

The ASU could have a substantial impact on the fair value disclosures of many investment companies, especially those that hold primarily Level 3 investments. The ASU removes or amends a number of existing disclosure requirements, including the Level 3 roll forward for nonpublic entities, as well as the description of the valuation processes for Level 3 assets (not to be confused with the description of valuation techniques, which still is required). 

Another potentially significant change is the elimination of the term “at a minimum” from the phrase “an entity shall disclose at a minimum.” Though this change is more subtle, it promotes entities to exercise the appropriate level of discretion when considering fair value measurement disclosures and clarifies that materiality is an appropriate consideration for entities and their auditors when evaluating disclosure requirements.

A summary of the key changes to Topic 820 disclosure requirements follows for public business entities (PBE) and nonpublic business entities (non-PBE):
 
exhibit 1
Effective dates

The ASU is effective for all entities with fiscal years beginning after Dec. 15, 2019, including interim periods, and for calendar year entities in their March 31, 2020, interim financial statements. Early adoption is permitted. 

In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date.
 

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