Disclosure Framework—Disclosure Review:
Fair Value Measurement

ACCOUNTING STANDARDS UPDATE NO. 2018-13, FAIR VALUE MEASUREMENT (TOPIC 820): DISCLOSURE FRAMEWORK—CHANGES TO THE DISCLOSURE REQUIREMENTS FOR FAIR VALUE MEASUREMENT

 

Overview


On August 28, 2018, the FASB completed its project on amending the disclosure requirements under Topic 820, Fair Value Measurement, as part of the disclosure framework project.  The amendments in this Update are the result of the Board’s consideration of the concepts in FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting—Chapter 8, Notes to Financial Statements, as they relate to disclosures about fair value measurement.

The following disclosure requirements were removed from Topic 820:  
  1. The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
  2. The policy for timing of transfers between levels
  3. The valuation processes for Level 3 fair value measurements
  4. 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.
The following disclosure requirements were modified in Topic 820:
  1. In lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is 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.
  2. For investments in certain entities that calculate net asset value, an entity is 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.
  3. The amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.
The following disclosure requirements were added to Topic 820; however, the disclosures are not required for nonpublic entities:
  1. 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.
  2. The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of 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 appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements.
 

The Disclosure Framework Project


The disclosure framework project’s objective and primary focus are to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by generally accepted accounting principles (GAAP) that is most important to users of each entity’s financial statements.
 
On March 4, 2014, the Board issued proposed FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, which the Board finalized on August 28, 2018. The Concepts Statement identifies a broad range of possible information for the Board’s consideration when deciding on the disclosure requirements for a particular topic. From that broad set, the Board will identify a narrower set of disclosures about that topic to be required on the basis of, among other considerations, an evaluation of whether the expected benefits of entities providing the information justify the expected costs. The Concepts Statement is used by the Board as part of the process for establishing disclosure requirements in accounting standards as well as for evaluating existing disclosure requirements, if and when the Board considers those requirements.
 
Before the Concepts Statement was finalized, the Board decided to test the concepts in the proposed Concepts Statement and improve the effectiveness of disclosure requirements in the following Topics:
  1. Fair Value Measurement (Section 820-10-50) 
  2. Defined Benefit Plans (Section 715-20-50)
  3. Income Taxes (Section 740-10-50)
  4. Inventory (Section 330-10-50)
Additionally, disclosure requirements for interim reporting are being evaluated for modifications.
 

Effective Dates


The amendments in this Update are 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 is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date.
 

Additional Information

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