OUR THOUGHTS ON:

Fair Value Measurements Disclosures for Investments are Changing Again!

Audit|Higher Education|Not-for-Profit

By Doug Morally

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) that would remove the requirement to categorize within the fair value hierarchy investments for which fair values are measured at net asset value (NAV) using the practical expedient.

Many not-for-profits and higher education institutions have substantial investment portfolios that include investments for which the fund manager calculates NAV or its equivalent.  There is diversity in practice as to how these investments are categorized in the fair value hierarchy due to the period of time to be considered when assessing redemption periods not being defined in current accounting literature.

Currently, investments valued using NAV as the practical expedient are categorized within the fair value hierarchy on the basis of whether the investment is redeemable with the investee at NAV on the measurement date, never redeemable with the investee at NAV or redeemable with the investee at NAV at a future date.  Investments redeemable at NAV in the near term are categorized as Level 2, while all other investments that utilize NAV as a practical expedient are categorized as Level 3.  FASB asserts that this proposed ASU will eliminate diversity in practice that exists today be removing the requirement to categorize these investments within the fair value hierarchy.

The comment period for this proposal ends January 15, 2015.

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© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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