New FASB Fair Value Disclosure Requirements (ASU 2011-04)
Overview:
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.
Agenda:
SEGMENT 1:
Anthony B. Creamer III, CPA, Managing Director,
Navigant
- 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
SEGMENT 2:
Ralph M. Natilli, CPA, Principal,
Rothstein Kass
- 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
SEGMENT 3:
Lou Fanzini, Director of Accounting Policy,
AIG
- 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
SEGMENT 4:
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
SEGMENT 5:
Jon Waterman, CPA, Partner,
McGladrey LLP
- Level of aggregation (or disaggregation)
- Sensitivity analysis
- Differences in disclosures that public companies have implemented
SEGMENT 6:
James W. Kaiser, CPA , Partner ,
BBD, LLP
FASB Requirements
- 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
- CPAs
- Valuation Analysts
- Finance Directors
- Auditors
- And other interested professionals
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 …
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 …
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 …
Josette Ferrer is the founder, CEO, and a Managing Director of Clairent Advisors. Since 1993, Josette has been assisting clients …
Course Level:
Intermediate
Advance Preparation:
Print and review course materials
Method of Presentation:
On-demand Webcast (CLE)
Prerequisite:
NONE
Course Code:
124398
NASBA Field of Study:
Auditing
NY Category of CLE Credit:
Total Credits:
2.0 CLE
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SPEAKERS' FIRMS:
AIG
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.
Website: https://www.rkco.com/
About AIG
About Deloitte & Touche LLP
“Deloitte” is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management and tax services to selected clients. These firms are members of Deloitte Touche Tohmatsu Limited (DTTL), a UK private company limited by guarantee. Each member firm provides services in a particular geographic area and is subject to the laws and professional regulations of the particular country or countries in which it operates. DTTL does not itself provide services to clients. DTTL and each DTTL member firm are separate and distinct legal entities, which cannot obligate each other. DTTL and each DTTL member firm are liable only for their own acts or omissions and not those of each other. Each DTTL member firm is structured differently in accordance with national laws, regulations, customary practice, and other factors, and may secure the provision of professional services in its territory through subsidiaries, affiliates and/or other entities.
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.
Website: https://mcgladrey.com/
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.
Website: https://www.bbdcpa.com/
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.