ASU 2018-13: Upcoming Changes to Disclosures for Fair Value Measurement
Tiffany Cavanaugh, Audit Senior Manager
The Financial Accounting Standards Board (FASB) recently issued Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU is part of a broader disclosure framework project by the FASB. The goal of this project is to improve the effectiveness of the disclosures in notes to the financial statements by more clearly communicating the information that is most important to the users of the financial statements.
This ASU applies to all entities that are required under existing GAAP to make disclosures about recurring or nonrecurring fair value measurements. The ASU removes certain requirements, modifies some disclosures and adds certain new disclosure requirements for public entities.
The following disclosure requirements are removed by this ASU:
- 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 of the fair value hierarchy
- The valuation processes for Level 3 fair value measurements
- For nonpublic entities only, 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 ASU modifies certain disclosure requirements, as follows:
- Instead of a rollforward for Level 3 fair value measurements, a nonpublic entity will be required to disclose transfers into and out of Level 3 of the fair value hierarchy, as well as purchases and issuances of Level 3 assets and liabilities.
- For investments in certain entities that calculate net asset value, an entity will be required to disclose the timing of liquidation of an investee’s assets, as well as the date when restrictions from redemption will lapse, but only if the investee has communicated the timing to the entity or announced it publicly.
- The amendments clarify that the measurement uncertainty disclosure is based on uncertainty that exists as of the reporting date.
The following disclosure requirements were added by this ASU; however, the disclosures are not required for nonpublic entities:
- 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.
- The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, the entity may determine that other quantitative information, such as the median or arithmetic average, would be a more reasonable and rational reflection of the distribution of unobservable inputs than weighted average. This is permitted under the ASU.
The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. An entity can elect to early adopt the ASU in its entirety, or only the disclosure requirements that are removed or modified and delay the adoption of the additional disclosures until their effective date. 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 in the ASU should be applied retrospectively to all periods presented.
If you have any questions regarding ASU 2018-13, please contact Tiffany Cavanaugh or your BNN advisor at 800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.