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Business and Policy Areas
Business and Policy Areas

NACUBO Responds to GASB's Views on Fair Value

October 3, 2013

NACUBO’s September 30 comments to the Governmental Accounting Standards Board (GASB) on the Preliminary Views (PV) “Fair Value Measurement and Application” support the GASB’s overall approach and point out known valuation and reporting challenges.

NACUBO’s comments draw from industry experience with complex investment instruments in college and university endowments. Although the 2012 NACUBO-Commonfund Study of Endowments shows that 52 percent of public institutions use alternative investment strategies, GASB’s literature offers no guidance for valuing or explaining these assets.

The starting point for the GASB’s evaluation of fair value measurement and application issues is FASB’s authoritative literature on fair value accounting and reporting (FASB Codification Topic 820). NACUBO supported this approach and the Board’s definition of fair value, which is the price that would be received to sell an asset or paid to transfer a liability. Other areas of support included:

  • General agreement that the definition of an investment would be a security or other asset that a government holds primarily for the purpose of income or profit, and its present service capacity is based solely on its ability to generate cash or be sold to generate cash.
  • Transaction costs to sell an investment should be treated as period costs, not adjustments to fair value.
  • Investments generally should be measured at fair value on a recurring basis.
  • The use of a practical expedient for measuring investments where a Net Asset Value per share (NAV) is calculated.
  • Disclosures should be required and organized by type or class of asset or liability at a level of detail that makes the most sense for the governmental reporting entity.

NACUBO requested clarification on the following issues:

  • The measurement approach for assets and liabilities that lack an available market, such as pledges and split interest agreements.
  • Whether real estate held as an investment in either the true endowment fund, quasi endowment fund, or outside of the endowment falls under the Board’s definition of an investment.
  • For investments where the practical expedient is used, the acceptability of rolling forward the most recent NAV with activity, or other significant known valuation changes, in order to estimate the fair value at the governmental entity’s reporting date.
  • A unit of account interpretation for situations where a public institution owns a portion of an investment structure and not the underlying asset (such as with a fund of funds investment).
  • The usefulness of quantitative disclosures about significant unobservable inputs and whether qualitative information not used as a valuation input can provide insight into the possible volatility resulting from changes in the unobservable inputs used to estimate fair value.
  • Thoughts on transition guidance and timing because measuring investments at fair value may require significant time and effort by governmental entities.

Higher education representatives will testify on these issues at a public roundtable on November 1. The complete comment letter is available on NACUBO’s website


Sue Menditto
Director, Accounting Policy