Proposed Accounting Standards Update on NAV Per Share

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (820), “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” As a reminder, comments on the proposed ASU are due January 15, 2015.

What Led to the Proposed ASU

Under Topic 820, a reporting entity is currently permitted, as a practical expedient, to estimate the fair value of certain investments using those investments NAV per share. These investments are then categorized in the fair value hierarchy as Level 2 or Level 3, using different criteria from that of other investments categorized within the hierarchy. Due to the judgment involved in categorizing these practical expedient investments, there has been diversity in practice regarding which level they are classified within.

Key Changes

Under the proposed ASU, the requirement to categorize investments for which fair value is measured at net asset value (or its equivalent) would be removed. Due to the removal of these investments from the hierarchy, additional disclosure is required such that the footnotes can be reconciled to the balance sheet. There are example illustrations in the proposed ASU. In addition, there are a few tweaks to disclosure requirements.

Comments

The FASB is currently seeking public comment, specifically with regard to the following questions:

  • Should these investments be excluded? If not, why, and how should they be categorized?
  • Should the scope of disclosures be limited only to practical expedient investments?
  • Are there other disclosures that should be required of these investments?
  • How much time is needed to implement the proposed ASU and should early adoption be permitted?
  • Do non-public entities need time over and above public entities to implement?

We recommend that firms consider how this proposal would impact them, and provide feedback to the FASB on its questions and any other comments. We will be happy to provide further information relating to this subject.

We will be happy to provide further information relating to this subject. For more information, contact Craig B. Evans, Manager, Audit & Accounting and member of Kreischer Miller’s Investment Industry Group at cevans@kmco.com or 215.441.4600.

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