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Business and Policy Areas
Business and Policy Areas

FASB Proposes Changes to Investment Disclosures

November 26, 2014

The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update that would amend the disclosure requirements for investments that are measured at net asset value (NAV) using the practical expedient. FASB is proposing that these investments no longer be categorized within the fair value hierarchy.

FASB asserts that not only will this change eliminate the diversity in practice that exists today, but it will also ensure that all investments categorized within the fair value hierarchy will be classified using a consistent approach. Independent institutions will still be required to provide disclosures to help users understand the nature and risk of these investments. Unlike today, however, they will only be required to include these disclosures for investments for which they have elected to use the practical expedient and not all investments that are eligible to be measured using the practical expedient.

Many independent institutions have investments for which the investment manager calculates NAV or its equivalent. In most cases, the institution, as a practical expedient, uses that NAV to measure the fair value of the investment at the reporting date. Currently, these investments are required to be categorized within the fair value hierarchy based on when, if ever, they are redeemable with the investee at NAV on the measurement date. Investments that are never redeemable at NAV or that are not redeemable at NAV in the near term are categorized within level 3 of the fair value hierarchy. Investments that are redeemable at NAV in the near term are categorized within level 2. Because the period of time to be considered when assessing redemption of these investments is not defined in accounting literature, there is diversity in practice as to how they are categorized within the fair value hierarchy.

NACUBO believes this is a positive change that will reduce time in preparing the financial statements as well as the time spent auditing the categorization of investments within the fair value hierarchy. Comments on the proposal are due January 15, 2015.


Sue Menditto
Director, Accounting Policy