FASB Issues Targeted Rules For Investments in Fair Value Hierarchy

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By Denise Lugo

May 1 — New rules, which ensure that all investments categorized in the fair value hierarchy are classified using a consistent approach, were issued by the Financial Accounting Standards Board.

The rules, issued May 1, are effective for public companies for fiscal years beginning after Dec. 15, 2015, and interim periods within those fiscal years, FASB said.

For all other companies, the guidance is effective for fiscal years beginning after Dec. 15, 2016, and interim periods within those fiscal years.

Retrospective application is required for all periods presented, FASB said.

Main Provisions

The ASU removes the requirement that entities categorize within the fair value hierarchy investments for which fair values are measured at net asset value using the rule exception under Topic 820, Fair Value Measurement.

The guidance also eliminates certain disclosures for all investments that are eligible to be measured at fair value using the net asset value exception.

FASB's Emerging Issues Task Force proposed EITF Issue No. 14-B last fall, removing the requirement to categorize within the three-level fair value hierarchy “investments for which fair value is measured at net asset value using the practical expedient” in Topic 820, formerly FAS 157. 

The guidance was issued to address diversity in practice, the ASU states. Diversity existed related to how certain investments measured at net asset value with redemption dates in the future, including periodic redemption dates, are categorized within the fair value hierarchy.

The rules were issued as ASU No. 2015-07, Fair Value Measurement (Topic 820), Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent), a consensus of the FASB Emerging Issues Task Force.

To contact the reporter on this story: Denise Lugo in Norwalk, Conn., dlugo@bna.com

To contact the editor on this story: Laura Tieger Salisbury at lsalisbury@bna.com

For a copy of the ASU go to http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498 .

For a discussion of fair value measurements, see 5127-2nd, Fair Value Measurements: Valuation Principles and Auditing Techniques, at 5127.