In May 2011, the Financial Accounting Standards Board released an Accounting Standards Update to Fair Value Measurement (Topic 820) that amends certain fair value measurement and disclosure requirements. The Update is a culmination of the work performed by FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards. The Update reflects a number of amendments to the requirements for measuring fair value and the application of such fair value measurements. According to the Update, many of those amendments are not expected to significantly affect current practices for reporting entities.
The Update also reflects amendments to certain fair value disclosure requirements. In particular, a reporting entity will be required to disclose the amount of any transfers between Level 1 and Level 2 of the fair value hierarchy. (Currently, only the amounts of significant transfers between Level 1 and Level 2 are required to be disclosed.) Additionally, with respect to Level 3 fair value measurements, a reporting entity will be required to:
- disclose the quantitative information about the significant unobservable inputs used in the fair value measurement (however, no disclosure will be required if the quantitative unobservable inputs were not developed by the reporting entity (e.g., when the reporting entity uses third-party pricing information without adjustment));
- provide a description of the valuation process used by the reporting entity (including, for example, how the entity decides its valuation policies and procedures and analyzes changes in fair value measurements from period to period); and
- provide a narrative description of (1) the sensitivity of a fair value measurement to changes in unobservable inputs, if a change in those inputs might result in a significantly different fair value measurement, and (2) any interrelationships between those inputs and other unobservable inputs used in the fair value measurement and how such interrelationships might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.
The amendments in the Update are effective during interim and annual periods beginning after December 15, 2011.