OUR THOUGHTS ON:

2011 Plan Reporting Brings More Fair Value Disclosures, While 2012 May Bring less for Non-Public Entities

ERISA

By Timothy Hammer

When preparing your 2011 plan financial statements, you need to make sure that you include more information relating to the fair value of your plan investments. ASU No. 2010-06 Improving Disclosures about Fair Value Measurements was issued in 2010 to increase the transparency in financial reporting of fair value measurements. This ASU required new disclosures to provide more information regarding activity in a reporting unit’s investments. The FASB noted that due to the different degrees of subjectivity and reliability on Level 1, Level 2, and Level 3 fair value measurements, information about significant transfers among the three levels and the underlying reasons for such transfers would be useful to financial statement users.

For 2010, the revised guidance required disclosures of the amounts and the reasons for significant transfers in and out of Level 1 and Level 2.

For 2011, the guidance requires that for the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting unit should present separately information about the purchases, sales, issuances and settlements (that is, on a gross basis rather than as one net number).

In May 2011, ASU No. 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs was issued. This ASU could impact reporting in 2012 for non-public entities.

Among the various amendments set forth in ASU No. 2011-04, there is clarification that a reporting entity should disclose quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy.

In addition to other changes, for fair value measurements categorized within Level 3 of the fair value hierarchy, the valuation processes used by the reporting entity and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any, should be disclosed.

However, some of the disclosures required by the amendments in ASU No. 2011-04 are NOT required for non-public entities. Those disclosures include the following:

  • Information about transfers between Level 1 and Level 2 of the fair value hierarchy. 
  • Information about the sensitivity of a fair value measurement categorized within Level 3 of the fair value hierarchy to changes in unobservable inputs and any interrelationships between those unobservable inputs.
  • The categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position, but for which the fair value of such items is required to be disclosed.

The amendments in ASU No. 2011-04 are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. Nonpublic entities may apply the amendments in this ASU early, but no earlier than for interim periods beginning after December 15, 2011.

Donald B. Applegarth, Shareholder, also contributed to this Insight.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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