Kimberly A. Reed
28 May 2020
There will be changes coming relating to the fair value measurement framework disclosure as ASU 2018-13 removes, modifies, and adds certain disclosure requirements. This update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. However, consideration of costs and benefits the revisions of ASU 2018-13 contains, may prompt entities to early adopt the changes for their upcoming year-end financial reporting. The FASB identified certain disclosures that could be eliminated to improve the effectiveness of the fair value disclosure in the financial statements.
The following four required disclosures are removed upon adoption of ASU 2018-13:
1. The amount of transfers of assets and liabilities measured on a reoccurring basis, between Level 1 and Level 2 of the fair value
2. The policy followed by an entity to determine when a transfer between Level 1 and Level 2 of the fair value hierarchy has
3. The processes used to measure reoccurring and nonrecurring valuations of assets and liabilities categorized as Level 3 of the fair value hierarchy. This means the following disclosures will no longer be required:
• The group that decides on an entity’s valuation policies and procedures, to whom they report, and the procedures they
• Frequency and method of calibrating and testing pricing
• Process for analyzing period- to-period change to fair value measurements;
• How third-party information was determined to be developed in accordance with US GAAP; and
• Methods used in developing and substantiating unobservable
inputs used in the fair value measurement
4. For nonpublic entities, the disclosure of changes in unrealized gains and losses from Level 3 fair value measurements included in earnings will be eliminated.
The following disclosures in Topic 820 were modified and are expected to increase their effectiveness:
1. If a nonpublic entity has recurring Level 3 fair value measurements, the entity may disclose transfers into and out of Level 3 of the fair value hierarchy, the reason for the transfer, and purchases and issuances of Level 3 fair value assets and liabilities in lieu of a roll-forward of Level 3 fair value measurements:
2. Disclosure of the timing of a liquidation of an investee’s assets and when redemption restrictions might lapse is only required for an investment in certain entities that calculate net assets value when the timing of the events has been communicated to the entity or made public, and:
3. The amendment clarifies that the measurement uncertainty disclosure of recurring Level 3 is to communicate information about the uncertainty in measurement as of the reporting date.
In addition to the eliminations and modifications noted above, the adoption of ASU 2018-13, will require public business entities to make additional disclosures to provide financial statement users with information about:
1. Changes in unrealized gains and losses that are included in other comprehensive income for recurring Level 3 fair value measurements for assets and liabilities that remain held at the end of the reporting period, and
2. Quantitative information about significant unobservable inputs used in Level 3 measurements. This information should include the
range that was used in developing the fair value measures, and the
weighted average of those inputs, unless a more reasonable and rationale method would be appropriate in place of the weighted average.
The ASU 2018-13 will also eliminate “at a minimum” from the phrase “an entity shall disclose at a minimum” to allow for appropriate consideration of materiality by entities and their auditors when evaluating the disclosure requirements.
As previously noted, ASU 2018-13 is effective for fiscal years, including interim periods within, beginning after Dec. 15, 2019. Early adoption is permitted at any time. It is important to note, the changes to the disclosure requirements are to be applied retrospectively, with the exception of disclosures about changes in unrealized gains and losses, range and weighted average of unobservable inputs, and uncertainty disclosures, which should be applied prospectively.
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