FASB Amends Required Fair Value Measurement Disclosures

On August 28, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2018-13, which changes the fair value disclosure requirements of ASC 820.

The guidance was developed as part of the FASB’s broader disclosure framework project and adds, eliminates, and modifies certain disclosure requirements for fair value measurements. In certain instances, the applicability of the amendments to ASC 820 depends on whether the entity is a nonpublic entity.

Key Provisions

Following are the key provisions of ASU 2018-13.

New Disclosure Requirements

The ASU adds the following disclosure requirements (which aren’t applicable to nonpublic entities):

  • Changes in unrealized gains and losses included in other comprehensive income for recurring level 3 fair value measurements of instruments held at the end of the reporting period.
  • The range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring level 3 fair value measurements, as well as how the weighted average was calculated. For certain unobservable inputs, entities are permitted to disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if it provides a more reasonable and rational reflection of the distribution of significant unobservable inputs used to develop the level 3 fair value measurement.

Eliminated Disclosure Requirements

The ASU eliminates the following disclosure requirements:

  • Amount of and reasons for transfers between level 1 and level 2 of the fair value hierarchy
  • Valuation processes for level 3 fair value measurements
  • Policy for the timing of transfers between levels of the fair value hierarchy
  • Changes in unrealized gains and losses included in earnings for recurring level 3 fair value measurements held at the end of the reporting period (applicable to nonpublic entities only)

Modified Disclosure Requirements

The ASU makes the following modifications to the disclosure requirements:

  • Disclosures. Deletion of “at a minimum” from the phrase “an entity shall disclose at a minimum” in ASC 820-10-50-2.
  • Level 3 Reconciliation. Nonpublic entities are able to disclose transfers into or out of level 3 of the fair value hierarchy and purchases and issuances of level 3 assets and liability in lieu of providing a reconciliation of the opening balances to the closing balances of recurring level 3 fair value measurements.
  • Unobservable Inputs. Public entities are required to provide a narrative description about the measurement uncertainty of level 3 fair value measurement from the use of significant unobservable inputs as of the reporting date rather than a point in the future if those inputs reasonably could have been different.
  • Liquidation Timing. Entities that use the practical expedient to measure the fair value of certain instruments at their net assets values are required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption will lapse only if the investee has communicated the timing to the entity or announced it publicly.

Effective Dates and Transition 

The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted in interim periods, including periods for which financial statements haven’t yet been issued or made available for issuance. Entities making this election can early adopt the eliminated or modified disclosure requirements and delay the adoption of the new disclosure requirements until the effective date.

The amendments relating to the following are required to be applied prospectively:

  • Changes in unrealized gains and losses
  • Range of weighted average of significant unobservable inputs used to develop level 3 fair value measurements
  • Narrative description of measurement uncertainty

All other amendments should be applied retrospectively.

We’re Here to Help

For any questions or to better understand how this new standard may affect your business, contact your Moss Adams professional.