Article by Ken Tysiac | Featured on Journal of Accountancy
FASB is proposing new accounting standards designed to improve the effectiveness of disclosure requirements on fair value measurements by enabling preparers to omit immaterial information.
The board is seeking comments by Feb. 29 on Proposed Accounting Standards Update, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.
The proposed amendments, released Thursday, are part of FASB’s disclosure framework project, which seeks to improve the effectiveness of disclosures in the notes to financial statements by requiring clear communication of information that is most important to financial statement users.
Under the proposal:
- An entity would provide required disclosures if they are material.
- Phrases such as “an entity shall disclose at a minimum,” which make it difficult to justify omitting immaterial disclosures, would be eliminated.
- Readers would be referred to Topic 235, Notes to Financial Statements, for discussion of the appropriate exercise of discretion. Topic 235 also is being amended under a proposal that would promote discretion by entities by providing an option to exclude immaterial information.
The following disclosures would be eliminated under the proposal:
- The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.
- The policy for timing of transfers between levels.
- The valuation policies and procedures for Level 3 fair value measurements.
- For private companies, the change in unrealized gains and losses for the period included in earnings (or changes in net assets) on recurring Level 3 fair value measurements held at the end of the reporting period.
The following disclosure requirements would be amended:
- Private companies would no longer be required to disclose a reconciliation of the opening balances to the closing balances of recurring Level 3 fair value measurements. But private companies would be 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.
- For investments in certain entities that calculate net asset value, disclosure of the timing of liquidation of an investee’s assets and the date when restrictions from redemption will lapse would be required only if the investee has communicated the timing to the entity or announced the timing publicly.
- The measurement uncertainty disclosure would be clarified to communicate information about the uncertainty in measurement as of the reporting date rather than information about sensitivity to changes in the future.
The following disclosure requirements would be added to Topic 820 but would not be required for private companies:
- The changes in unrealized gains and losses for the period included in other comprehensive income and earnings (or changes in net assets) for recurring Level 1, Level 2, and Level 3 fair value measurements held at the end of the reporting period, disaggregated by level of the fair value hierarchy.
- For Level 3 fair value measurements, the range, weighted average, and time period used to develop significant unobservable inputs.
Comments can be made at FASB’s website.
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