New Guidance on Fair-Value Disclosures for Entities Using the Practical Expedient

In May, the Financial Accounting Standards Board (FASB) released an amendment to Accounting Standards Codification® (ASC) Topic 820, Fair Value Measurement, to eliminate the requirement to categorize investments within the fair-value hierarchy when fair value is measured using the practical expedient.

Practical Expedient

Topic 820 allows reporting entities, as a practical expedient, to measure certain investments at their net asset value (NAV) per share (or equivalent). The practical expedient is allowed only if the following conditions are met as of the reporting entity’s measurement date:

  • The investment doesn’t have a readily determinable fair value.
  • The investee is an investment company within the scope of ASC Topic 946, Financial Services—Investment Companies.

Fair-Value Measurement Disclosures

If the reporting entity elects to use the practical expedient for the fair-value measurement of certain investments, then the reporting entity is no longer required to categorize these investments within the fair-value hierarchy. Instead, the reporting entity discloses its use of the NAV-per-share practical expedient for fair-value measurement and that the investments aren’t included in the fair-value hierarchy.

Investments for which the practical expedient isn’t applied will continue to be included in the fair-value hierarchy. Additional disclosures may be needed so users can easily reconcile the total investments categorized within the fair-value hierarchy with the amounts presented on the statement of position.

Effective Date

Early adoption is permitted, and the amendments are effective as follows:

  • For public entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years
  • For other entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years

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For more information about the FASB’s amendment to Topic 820 and insight on how it could affect reporting regarding your fair-value measurements and disclosures, contact your Moss Adams professional.

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