Fair Value — FASB Adds Project to Its Agenda to Address Concerns of Nonpublic Entities

Published on: 22 Nov 2011

Today, the FASB added a project to its agenda that would potentially exempt nonpublic entities (i.e., private companies) from some of the disclosure requirements in U.S. GAAP for fair value measurements categorized in Level 3 of the fair value hierarchy. This project was added in response to concerns expressed by private-company constituents that certain of these requirements are excessive and costly. These constituents specifically requested relief from the following disclosure requirements:

  1. “For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, a reconciliation from the opening balances to the closing balances.”1
  2. “For fair value measurements [recurring and nonrecurring] categorized within Level 3 of the fair hierarchy, . . . quantitative information about significant unobservable inputs used in the fair value measurement.”2

The Board instructed the staff to first focus on the disclosure requirements in ASC 820,3 including amendments made by ASU 2011-04.4 However, the staff plans to perform targeted outreach in December and January, and one Board member expressed concern that constituents’ feedback may not be limited to these requirements. FASB Chairman Leslie Seidman indicated that the Board would evaluate feedback received in response to this outreach and may consider revisiting the project’s scope. The staff estimated that deliberations could begin in the first quarter of 2012.

Editor’s Note: During its presentation to the Board, the staff recommended including all for-profit and not-for-profit nonpublic entities within the scope of this project, provided that they meet the following definition of “nonpublic entity” from the Codification Master Glossary:

Any entity that does not meet any of the following conditions:

  1. Its debt or equity securities trade in a public market either on a stock exchange (domestic or foreign) or in an over-the counter market, including securities quoted only locally or regionally.
  2. It is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the counter market, including local or regional markets).
  3. It files with a regulatory agency in preparation for the sale of any class of debt or equity securities in a public market.
  4. It is required to file or furnish financial statements with the Securities and Exchange Commission.
  5. It is controlled by an entity covered by criteria (a) through (d).

[1] ASC 820-10-50-2(c).

[2] ASC 820-10-50-2(bbb).

[3] FASB Accounting Standards Codification Topic 820, Fair Value Measurement.

[4] FASB Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.

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