FASB Deliberates NAV for Alternative Investments
August 13, 2009
Early August deliberations by the Financial Accounting Standards Board (FASB) concerning proposed FASB Staff Position (FSP) 157-g, "Estimating the Fair Value of Investments in Investment Companies That Have Calculated Net Asset Value (NAV) per Share in Accordance with the AICPA Audit and Accounting Guide," have affirmed earlier Board decisions on the use of NAV. Organizations would be permitted to estimate the fair value of alternative investments using the NAV if NAV is calculated in accordance with financial services measurement principles (Topic 946 of the Codification).
Although a final Accounting Standards Update may not be issued until September 2009, the public availability of FASB's decisions is important for the many institutions with alternative investments that are currently in the midst of their financial statement audits. All indications from institutions with alternative investment portfolios are that there is reliance on FASB's deliberations concerning the use of NAV.
Additional Board decisions of interest to higher education are summarized below:
- The final Accounting Standards Update will be effective for periods ending after December 15, 2009, with early adoption permitted. If an entity elects to early adopt the Accounting Standards Update, the entity would not be required to early adopt the disclosure provisions of the Accounting Standards Update.
- An entity would be permitted to use net asset value as a practical expedient on an investment-by-investment basis. The entity would be required to apply the practical expedient consistently to its entire position in a particular investment.
- The Board decided to clarify that an entity may apply the practical expedient if the net asset value reported by the investee is not as of the reporting entity's measurement date. However, the entity would be required to adjust the latest available net asset value for significant events that have occurred since the date the net asset value was calculated.
- The Board decided to clarify that the disclosures are to be presented by major category, rather than by individual investment. The categories are intended to be consistent with existing guidance for major security types for debt and equity securities and major categories of plan assets.
- An entity would not be permitted to use net asset value, as a practical expedient, if certain criteria indicate that it is probable that the entity will sell the investment in a secondary market.
The entire deliberations are available in the "action alert" section of FASB's website.
Read NACUBO's comments to FASB on proposed FSP 157g.
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