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Private Investment Companies Be Advised: Fair Value Disclosure Requirement Changes

On August 28, 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2018-13 (“ASU 2018-13), Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The update is part of the FASB’s larger disclosure framework project to improve the effectiveness of financial statement footnote disclosures. ASU 2018-13 changes the required fair value disclosures related primarily to level 3 investments.
The following summarizes the changes to disclosure requirements for non-public entities:

Removal of Certain Disclosures:

  • Amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.
  • Policy regarding the timing of transfers between levels in the fair value hierarchy.
  • Valuation processes for level 3 measurements.
  • Changes in unrealized gains and losses for Level 3 investments still held at the end of the period.

Modifications to Certain Disclosures:

  • In lieu of a roll forward of Level 3 fair value measurements, disclosures are required for transfers into and out of level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
  • For investments in certain entities that calculate net asset value, the following should be disclosed only if the investee has communicated :
    • The timing of liquidation of an investee’s assets
    • The date when restrictions on redemptions related to the investee may lapse.

Fair Value Disclosures Effective Date

ASU 2018-13 is effective for non-public entities for annual periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted.

For questions on AICPA’s Accounting and Business Valuation Guide for Venture Capital & Private Equity, contact our Financial Services Group by filling out the form below.

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