New FASB Fair Value Disclosure Requirements (ASU 2011-04)
Fair Value Disclosures: New disclosures for level 3 fair value measurements were effective Q1 2012. The disclosures were more complex and operationally intensive than originally expected by most preparers. In addition, the information provided may not always be conducive to an investor’s understanding of the unobservable inputs used in these measurements. This webcast would provide insight on the FASB’s requirements, a comparison/review of disclosures in companies’ SEC filings, SEC’s views on what should be disclosed, auditors’ concerns, and the current thinking on how this disclosure is expected to evolve.
Anthony B. Creamer III, CPA, Managing Director,
- Recent SEC Enforcement Actions and Initiatives Focused on Fair Value
- PCAOB Reports and Comments on FV and Impact of Reporting Entities (and Their Auditors)
- Role of the Board in Evaluating FV and Related Disclosures along with some suggested Best Practices
Ralph M. Natilli, CPA, Principal,
- New disclosure requirements for level 3 measurements (this can be broken down into 3 taking points as follows):
- Quantitative disclosures of unobservable inputs
- Description of valuation processes
- Qualitative discussion of sensitivity to changes in unobservable inputs (public entities only)
- New disclosure requirements for level transfers
Lou Fanzini, Director of Accounting Policy,
- Determination of asset classes
- Ability to aggregate data for footnote disclosure
- Robustness of valuation processes
- Visibility behind pricing vendor prices (methodologies and data inputs)
- Process to analyze input levels for vendor or custodian pricing
- Process to capture valuation technique changes
- Process to qualitatively access sensitivity of inputs
- Auditor view of reasonably availables
Christopher Esposito, Partner,
Deloitte & Touche LLP
- Most public companies adopted ASU 2011-04’s1 amendments to the fair value measurement and disclosure requirements in ASC 8202 during the first quarter of 2012.
- Deloitte looked at 30 SEC filings from entities in several financial services industry (FSI) sectors to see how financial services companies implemented the ASU.
- Most companies from our sample disclosed that the adoption of ASU 2011-04 did not materially affect their financial position or results of operations, indicating that the ASU had little effect on measurement practices.
- The ASU’s amendments to the fair value disclosure requirements in U.S. GAAP were more significant.
- Although some entities applied the new disclosure requirements similarly, we observed diversity in practice.
- Process to capture valuation technique changes
- For example, the entities in our sample provided different types of quantitative information about significant unobservable inputs in Level 3 measurements (e.g., a range, weighted average, neither, or both), but many excluded information, taking advantage of the exemption from this requirement for significant unobservable inputs developed by third parties
Jon Waterman, CPA, Partner,
- Level of aggregation (or disaggregation)
- Sensitivity analysis
- Differences in disclosures that public companies have implemented
James W. Kaiser, CPA , Partner ,
- ASU 2011-04 states that it is effective for annual and interim periods beginning after 12/15/11. For an 11/30 year end Fund, their annual period began 12/1/11, so is any disclosure necessary since the annual period began before 12/15/11? (SD)
- Some audit firms are telling clients that yes disclosure is necessary but for an interim period.
- How beneficial is that information since it is only for an interim period and not a full year?
- ASU does not allow the use of blockage discounts, but clearly does not restrict the application of other discounts in valuation. Discuss and explain unit of measure concept.
The current thinking on how this disclosure is expected to evolve
- Old thinking was to default to level three when inputs to pricing became more opaque. (CRS)
- As management is presented with disclosing the inputs to their valuations, it is possible that previously considered level three assets will be considered as level 2
- Disclosure should evolve to allow the readers of the financial statements to better understand how changes in market conditions could affect the Fund’s investments
- Current disclosures surrounding fair value levels may come up a bit short. Simply calling an investment a level three asset carries some weight, but to describe that changes in interest rates, for instance, could impact the value (and performance) of the investment
- Focus on the reader -providing more insight into management’s methodology of determining FS disclosures; i.e. the narrative about fair value measurements and sensitivity analysis in the hopes of providing the reader with a clearer picture of how management comes to value such securities (JMD)
Views on what should be disclosed
- Consideration for breaking down the investment types further, i.e. Bonds -> Corporate, High Yield, Foreign, etc. to better align the inputs to fair valuation levels to relevant ranges (CRS)
- If the range of broker prices provided in the table for level 3 securities is so wide, how meaningful is the information in that specific column. Should there be a footnote explaining why the range is so wide? (SD)
- What disclosures are required when a prior transaction price is used in a Level 3 measurement?
- What disclosures are required when the practical expedient is used to value investments in unregistered investment partnerships.
Who Should Attend:
- Preparers and users/analysts
- Valuation Analysts
- Finance Directors
- And other interested professionals
Anthony B. Creamer III, CPA is a Managing Director at Navigant Consulting specializing in litigation, dispute analysis and financial investigation services. He has been practicing as a Certified Public Accountant (CPA) since 1980. He is also Accredited in Business Valuation (ABV) and Certified in Financial Forensics (CFF) by the American Institute of Certified Accountants.
Anthony B. Creamer III, CPA is a Managing Director at Navigant Consulting specializing in litigation, dispute analysis and financial investigation …
Ralph is a principal based in Rothstein Kass’ Roseland, New Jersey office and specializes in providing financial reporting, tax and accounting services to clients in the financial services industry. He has experience working with a variety of clients including domestic and offshore investment funds, funds of funds, investment advisors and related management entities. In addition, Ralph serves as Co-Chairman of the Firm’s Financial Services Best Practices Committee. He is a certified public accountant in New York, New Jersey and Massachusetts.
Ralph is a principal based in Rothstein Kass’ Roseland, New Jersey office and specializes in providing financial reporting, tax and …
Louis (Lou) Fanzini is Director of Accounting Policy at AIG. In this role, he holds a leadership position developing implementation strategies for US GAAP and IFRS accounting standards on a global basis. Lou is a former FASB Industry Fellow and served as a project manager for the development of accounting standards on accounting and reporting matters related to financial instruments and the global banking and financial services industries.
Lou has previously held positions in the front office as an equity analyst at Credit Suisse, as a technical accounting advisor in J.P. Morgan & Co’s accounting policy group and as a public accountant leading audit engagements of broker-dealers, banks, and hedge funds. He is a CPA, earned a masters degree in Finance from Fordham University and holds the Series 7 and 63 FINRA designations.
Louis (Lou) Fanzini is Director of Accounting Policy at AIG. In this role, he holds a leadership position developing implementation …
Chris is a Partner in Deloitte’s Financial Instrument Valuation & Securitization group in New York. He provides audit support for portfolio valuations in the areas of mortgage-backed securities, asset-backed securities, and related derivatives and structured securities and performs critical reviews of third-party and proprietary valuation models and methodologies. Chris also has experience in the Securitization advisory business, assisting clients in dealing with operational, market, liquidity and legal risks associated with holding and administering structured products.
Chris has served clients as part of Deloitte’s Securitization practice for 18 years and has experience developing models and performing transaction document reviews on a broad array of new issuance structured products including RMBS, CMBS, CDOs and other Asset Backed Securities. Chris has assisted investment banks and asset managers in performing agreed upon procedures, closing over 600 CDO transactions with an aggregate capitalization exceeding 200 billion dollars.
Chris serves as a Financial Instruments and Valuation Subject Matter Resource for Deloitte and is regularly consulted on matters relating to valuation of complex financial instruments.
Education – Bachelor’s of Business Administration, University of Michigan – 1992
Certifications – New York CPA
Chris is a Partner in Deloitte’s Financial Instrument Valuation & Securitization group in New York. He provides audit support for …
Jon works exclusively with clients in the financial services industry and has particular expertise in meeting the needs of private equity funds and business development companies (BDCs) and serves as McGladrey’s practice leader for BDCs. Jon’s client base includes BDCs, domestic and offshore investment partnerships/companies, commodity pool operators and commodity trading advisors, fund of funds, registered investment advisers, broker-dealers, small business investment companies, private equity funds, regulated investment companies and specialty finance companies.
In addition to general accounting and auditing, financial reporting, and consulting services, Jon works closely with McGladrey’s financial services clients on financial and regulatory compliance matters. He has counseled start-up funds, working alongside attorneys, administrators and prime brokers. Jon’s clientele range from start-ups to multi-billion dollar entities with a variety of trading strategies, including long/short equities, convertible arbitrage, fixed income, derivatives, distressed debt and private equities.
He serves both private entities and public registrants, is well versed in the Investment Act of 1940 and is designated as a SEC audit partner within the Firm. Over the course of his career, Jon has been involved with both initial public and secondary offerings and has worked extensively with various securities counsel and underwriters.
Jon works exclusively with clients in the financial services industry and has particular expertise in meeting the needs of private …
Jim Kaiser is a partner with BBD’s Investment Management Group. His specialized expertise related to investment companies includes:
- Accounting and tax issues related to innovative products
- Mauritius special-purpose vehicles
- Implications related to investments in convertible bonds
- Establishments of controlled foreign corporations to gain commodity exposure without failing the IRS qualifying income requirement for regulated investment companies
- Investments in Master Limited Partnerships, Passive Foreign Investment Companies, Grantor Trusts and other securities with special tax implications
- Informing and assisting clients with various start-up considerations for ETFs, such as tax efficiency and regulated investment company diversification compliance
- Special consideration for creation units of ETFs with emerging markets exposure
Jim regularly presents seminars on the implications of new accounting pronouncements and other developments affecting investment companies. He is a graduate of Rutgers University, where he earned his Bachelor of Science degree with a major in accounting.
Jim Kaiser is a partner with BBD’s Investment Management Group. His specialized expertise related to investment companies includes: Accounting …
Josette Ferrer is the founder, CEO, and a Managing Director of Clairent Advisors. Since 1993, Josette has been assisting clients with the valuation of intangible assets, intellectual property, closely held businesses and business interests, stock options, debt instruments, and capital equipment / fixed assets.
Prior to founding Clairent Advisors, Josette was the U.S. Practice Leader of Marsh’s Valuation Services Group. Her career includes serving as the Managing Director responsible for starting the San Francisco Valuation Services Group of WTAS, Inc., a former subsidiary of HSBC Group. Prior to WTAS, Josette was a director with Huron Consulting Group and a senior manager at Arthur Andersen LLP.
Josette has been a guest speaker for a wide variety of forums, including Financial Executives International, the Institute of Management Accountants, and the Practising Law Institute. She holds a B.S. in Business Administration, from U.C. Berkeley.
Josette Ferrer is the founder, CEO, and a Managing Director of Clairent Advisors. Since 1993, Josette has been assisting clients …
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About Rothstein Kass
Rothstein Kass provides audit, tax, accounting and advisory services to hedge funds, funds of funds, private equity funds, broker-dealers and registered investment advisors. The firm is recognized internationally as a top service provider to the industry through its Financial Services Group. The Financial Services Group consults on a wide range of organizational, operational and regulatory issues. The firm also advises on fund structure, both inside and outside the United States, compliance and financial reporting, as well as tax issues from a federal, state, local and international compliance perspective. Rothstein Kass has offices in Boston, California, Colorado, Massachusetts, New Jersey, New York, Texas and the Cayman Islands.
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About McGladrey LLP
McGladrey LLP is the fifth largest U.S. provider of assurance, tax and consulting services, with nearly 6,500 professionals and associates in more than 70 offices nationwide. McGladrey is a licensed CPA firm.
It is the U.S. member of RSM International (“RSMI”), the sixth largest network of independent accounting, tax and consulting firms worldwide, with offices in more than 85 countries and more than 32,000 people to serve clients’ business needs. The member firms of RSMI collaborate to provide services to global clients, but are separate and distinct legal entities which cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party.
About BBD, LLP
BBD, LLP is a nationally recognized, PCAOB-registered firm of Certified Public Accountants located in Philadelphia. The firm specializes in providing services for the investment management industry.
BBD’s Investment Management Group provides audit and tax services for registered and unregistered investment companies, investment advisors and securities broker/dealers. Our affiliate, BBD Cayman, provides audit services for offshore hedge funds based in the Cayman Islands.
The Investment Management Group maintains a blog, investmentcompanynotebook.com, providing insight and analysis on the audit and tax issues impacting investment companies. BBD’s investment company expertise also is sought out regularly by the nation’s premier financial media. In the past several months, BBD has commented in Money Management Executive, Ignites, Fund Director Intelligence, and Onwallstreet.
About Clairent Advisors LLC
Clairent Advisors specializes in providing independent asset and business valuations – combining proven techniques, analytical tools, and extensive experience to produce thorough and well-documented deliverables. Clairent’s team has significant experience providing valuations and financial advisory services for a variety of needs, including, but not limited to: financial reporting, tax planning and reporting, mergers and acquisitions, corporate reorganization and bankruptcy, and litigation support. Clients have valued Clairent’s credentials – with experience on over 600 significant valuation engagements – coupled with the responsiveness and focus from senior level team members on all aspects of a project. Serving both U.S. as well as international clients, Clairent is based in San Francisco, California.