FY13 Implementation Reminder for Independent Institutions
May 3, 2013
Additional disclosures under FASB Accounting Standards Update 2011-04, "Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS," are required for most independent institutions for FY13.
FASB Accounting Standards Update (ASU) 2011-04, "Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS," requires additional disclosures in FY13 financial statements. For level 3 investments where the practical expedient provided in ASU 2009-12 is not employed, the following disclosures are required:
- Quantitative information about the unobservable inputs used in calculating recurring Level 3 fair value measurements
- A description of the valuation processes used
- A qualitative discussion about the sensitivity of the measurements to changes in unobservable inputs and interrelationships between the unobservable inputs, if any.
The third disclosure (above) is not required for independent institutions that are considered non-public. FASB defines non-public entities as those that do not issue publicly-traded debt or are not conduit debt obligors.
Questions have been raised about whether an institution is using the practical expedient to value its alternative investments if audited net asset values (NAV) provided by fund managers are "rolled forward" with unaudited activity data. Regardless of whether or not the value is rolled forward, if the investment value meets the criteria under ASU 2009-12, the instrument is still considered to be valued using the practical expedient.
For investments that do not meet the criteria to be included under the practical expedient, the disclosures should encompass input data that the institution uses in its valuation model. The institution should not "look through" to the individual assets held in the fund as the institution owns a share of the fund and not a share of each individual investment within the fund.
Regardless of whether or not the practical expedient is used for valuation, public entities (higher education institutions that are debt issuers or conduit debt obligors) must disclose:
- Transfers between level 1 and level 2 of the fair value hierarchy on a gross basis and the reasons for those transfers, and
- The categorization by level for items that are not presented in the statement of financial position at fair value, but for which disclosure of the fair value is required. For example, an institution's bonds may be carried at amortized cost on the balance sheet but their fair value is required to be disclosed in the notes. That note disclosure must now include the level within the fair value hierarchy in which the fair value of the bonds would be categorized.
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