FASB Issues Accounting Standards Update 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS

    The FASB recently issued an ASU intended to align fair value measurement and disclosure standards with International Financial Reporting Standards (“IFRS”). Some key highlights of the ASU include:

    • Non-financial assets: Highest and best use and valuation premise: The ASU clarifies that the highest-and-best-use and valuation-premise concepts apply only to non-financial assets and should not be applied to financial assets and liabilities.
    • Financial assets and financial liabilities with offsetting positions: When a specific set of criteria for financial assets and financial liabilities with offsetting positions is met, the ASU allows for the fair value determination of the net risk position (vs. the gross risk).
    • Premiums and / or Discounts to Fair Value: Premiums or discounts are appropriate if market participants would incorporate them into the measurement of an asset / liability (e.g., a control premium when measuring the fair value of a controlling interest). However, adjustments related to the size of a subject (e.g., a blockage discount) should not be considered in determining fair value.
    • Disclosures related to fair value measurements: The ASU provides expanded and specific guidance related to the disclosure requirements of fair value measurements. In particular, detailed guidance for Level 3 inputs is provided.
        For Level 3 fair value measurements, the ASU requires disclosure of: 1) quantitative information for unobservable inputs, 2) a description of the valuation process, and 3) a description of the sensitivity of the fair value measurements to changes in the unobservable inputs.
        The ASU clarifies that for assets and liabilities for which fair value is not measured but are required to be disclosed, the fair value hierarchy level of such assets and liabilities must be disclosed.
        For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011.