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The fair value disclosure requirements for both recurring and nonrecurring measurements are discussed in the following sections:
  • General disclosure requirements - Figure FSP 20-1
  • Disclosures specific to valuation techniques and significant inputs - Figure FSP 20-2
  • Disclosures for investments measured at net asset value - FSP 20.4
  • Disclosures for financial instruments not measured at fair value - FSP 20.5
  • Disclosures for instruments under the fair value option - FSP 20.6

The disclosure requirements in ASC 820 are intended to provide information about the following:
  • The valuation techniques and inputs used to measure fair value, including judgments and assumptions made
  • The uncertainty in the fair value measurements as of the reporting date
  • How changes in fair value measurements affect performance and cash flows

To increase consistency and comparability in fair value measurements, the fair value standard establishes a hierarchy (addressed in FV 4) to prioritize the inputs used in valuation techniques. The level in the fair value hierarchy and the significant inputs used in a fair value measurement are two of the fundamental disclosure requirements of ASC 820. Further, disclosure requirements are largely based on the level in the hierarchy. As the level decreases, disclosure requirements increase, and certain required disclosures are applicable only to Level 3 fair value measurements.

20.3.1 Fair value disclosure general requirements

For all interim and annual reporting periods, there are specific quantitative and qualitative disclosures required for each class of assets and liabilities measured at fair value on the balance sheet. Reporting entities should make the disclosures with sufficient detail to permit reconciliation to the line items in the balance sheet. Quantitative disclosures should be presented in a tabular format in accordance with ASC 820-10-50-8.
Figure FSP 20-1 delineates certain fair value disclosure requirements for both recurring and nonrecurring measurements. Those specific to valuation techniques and unobservable inputs are included in Figure FSP 20-2 and to investments measured at net asset value are included in FSP 20.4. Disclosures for financial instruments not measured at fair value are discussed in FSP 20.5 and disclosures for instruments under the fair value option are in FSP 20.6.
Figure FSP 20-1 summarizes the general fair value disclosure requirements.
Figure FSP 20-1
General fair value disclosure requirements
Disclosure requirement for each class of asset and liability
ASC reference
Related information
The fair value measurement at the end of the reporting period
For nonrecurring fair value measurements, the fair value measurement at the relevant measurement date and the reasons for the measurement
For nonrecurring measurements at a date other than the end of the reporting period, the reporting entity should state the date of the measurement.
For both recurring and nonrecurring measurements, the total fair value in each level of the fair value hierarchy
(Not applicable to investments measured at NAV as a practical expedient, but applicable to investments measured at NAV – see FSP 20.5)
For public business entities, ASC 820-10-50-2E indicates that this disclosure is also applicable to assets and liabilities for which fair value is only disclosed.
For further discussion of the disclosure requirements, see FSP 20.3.1.1.
For recurring Level 3 fair value measurements, a rollforward of the beginning and ending balances (“the Level 3 rollforward”), separating:
  • Total gains or losses for the period in income
  • Total gains or losses for the period in OCI
  • The line item in the income statement or statement of comprehensive income that includes the gains and losses
  • Purchases
  • Sales
  • Issues
  • Settlements
  • Transfers in to Level 3 and the reasons for the transfers
  • Transfers out of Level 3 and the reasons for the transfers
For further discussion, see FSP 20.3.1.2.
Nonpublic entities are not required to do a full Level 3 rollforward. See FSP 20.7.
For recurring Level 3 fair value measurements:
  • Unrealized gains or losses for the period included in income
  • The line item in the income statement where the unrealized gains or losses are recognized
  • Upon adoption of ASU 2018-13, the unrealized gains or losses for the period in OCI and the line item in the statement of comprehensive income where the unrealized gains or losses are recognized
The amount disclosed as the unrealized gain/loss relating to assets and liabilities held at the end of the reporting period should be consistent with (1) the reporting entity’s policy for the timing of transfers of securities into and out of Level 3 (e.g., beginning of the period or end of the period) and (2) the amount of total gains and losses included in the Level 3 rollforward table for that period. This is because the unrealized gain/loss should only be included for the period in which the instrument was Level 3. This is illustrated in Example 20-1.
For recurring and nonrecurring fair value measurements of nonfinancial assets, the highest and best use of a nonfinancial asset when it differs from its current use, and why
ASC 820-10-50-2E indicates that the disclosure is also applicable to assets and liabilities for which fair value is only disclosed.
The accounting policy decision to use the exception applicable to financial assets and liabilities with offsetting positions in market risks or counterparty credit risk (the “portfolio exception”)
See FV 6 for discussion of the portfolio exception.
Existence of a credit enhancement (for issuers of debt with an inseparable third-party credit enhancement that is recorded as a liability that is measured at fair value)
See FV 8 for discussion of the measurement of liabilities with inseparable third-party credit enhancements.

20.3.1.1 Fair value hierarchy disclosures

ASC 820-10-50-2(b) requires reporting entities to disclose the level that a fair value measurement falls in its entirety in the fair value hierarchy. A fair value measurement, which may be the result of multiple inputs, is categorized in its entirety by reference to its lowest level (i.e., least reliable) significant input. For a Level 1 measurement, there is only a Level 1 price with no adjustment.

20.3.1.2 Level 3 rollforward

See ASC 820-10-55-101 for an illustration of a rollforward disclosure for recurring Level 3 fair value measurements.
Question FSP 20-1 illustrates how a reporting entity should calculate unrealized gains and losses for an interest bearing security in the Level 3 rollforward.
Question FSP 20-1
How should a reporting entity calculate unrealized gains and losses for an interest bearing security (e.g., trading or available-for-sale debt securities) held at period end for purposes of the Level 3 rollforward?
PwC response
There are several acceptable methods for determining unrealized gains/losses for items still held at the reporting date.
  • Method A — Balance sheet view
  • Determine unrealized gains and losses as the fair value of the security less its amortized cost basis. This view holds that gains and losses are realized at maturity or sale date; thus the entire gain/loss is considered unrealized until maturity or sale.
  • Method B — Income statement view
  • Determine unrealized gains and losses as the total gains and losses during the period less the cash received or paid (i.e., what is realized) for those items. This view holds that each individual cash receipt or settlement represents a realized gain or loss.
  • Method C
First, determine any realized gains or losses as the difference between the beginning-of-period expected cash flows and actual cash flows for the period. Then, determine unrealized gains or losses as the difference between the remaining expected cash flows for future periods at the beginning and end of the period.
The fair value standard does not specify a particular method. As a result, we consider all views to be acceptable. Reporting entities should select a method, disclose which method is used, and apply it consistently.

Question FSP 20-2 evaluates the presentation of other-than-temporary impairments on available-for-sale debt securities in the Level 3 rollforward.
Question FSP 20-2
Are other-than-temporary impairments (OTTI) under ASC 320 on available-for-sale debt securities considered realized or unrealized in the Level 3 rollforward?
PwC response
We believe there are two acceptable views as to whether they are realized or unrealized in the Level 3 rollforward.
  • View A
Present OTTI losses as realized. This view is supported by the guidance in ASC 320, which describes the nature of OTTI losses as “realized.” Also, OTTI is realized because it is excluded from the definition of a “holding gain or loss,” which is unrealized, in ASC 320.

ASC 320-10-20

Holding gain or loss: The net change in fair value of a security. The holding gain or loss does not include dividend or interest income recognized but not yet received or write-downs for other-than-temporary impairment.

  • View B
Present OTTI losses and significant declines in value as unrealized. The overall objective of the Level 3 rollforward disclosures is to present the income statement impact of Level 3 fair value measurements that are not verified with an observable transaction (i.e., a sale in the marketplace). Proponents of this view believe that recognition of an OTTI is not an observable or realized transaction.
Because the fair value standard does not specify a particular method, we consider both views to be acceptable. Reporting entities should select a method, disclose which method is used, and apply it consistently.

Question FSP 20-3 evaluates the presentation of credit losses on available-for-sale debt securities in the Level 3 rollforward.
Question FSP 20-3
Are credit losses under ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on available-for-sale debt securities considered realized or unrealized in the Level 3 rollforward?
PwC response
Under the guidance in ASC 326, credit losses will be recorded as an allowance as opposed to a direct write-off of the value of the security. We believe there are two acceptable views as to whether they are realized or unrealized in the Level 3 rollforward.
  • View A
Present credit losses as realized because they are excluded from the definition of a “holding gain or loss,” which is unrealized, in ASC 326.

ASC 326-30-20

Holding gain or loss: The net change in fair value of a security. The holding gain or loss does not include dividend or interest income recognized but not yet received, writeoffs, or the allowance for credit losses.

  • View B
Present credit losses and significant declines in value as unrealized. The overall objective of the Level 3 rollforward disclosures is to present the income statement impact of Level 3 fair value measurements that are not verified with an observable transaction (i.e., a sale in the marketplace). Proponents of this view believe that a credit loss is not an observable or realized transaction.
Because the fair value standard does not specify a particular method, we consider both views to be acceptable. Reporting entities should select a method, disclose which method is used, and apply it consistently.

Transfers into and out of Level 3 in the hierarchy
The level of a fair value measurement may change. Reporting entities should consistently follow a policy for determining when transfers between levels are recognized. The policy should be the same for transfers in and out of all levels. Examples of the different policies that can be used to record transfers include (1) the actual date of the transfer, (2) assuming the transfer occurs at the beginning of the period, or (3) assuming the transfer occurs at the end of the period.
There are implications of the reporting entity’s policy regarding when transfers are recorded. For example, unrealized and realized gain and loss activity during the period would not be reflected in the Level 3 rollforward for the period if a reporting entity applies an end-of-period convention for transfers in.
As a practical matter, reporting entities may only have formal procedures for assessing the level in the hierarchy at the end of a reporting period. In this case, assuming end-of-period transfers in and out may be the most efficient.
A reporting entity’s policy choice with respect to the timing of transfers in and out of the levels will also impact the relationship between the year-to-date disclosures and quarter disclosures. Use of end-of-period or beginning-of-period methods generally will result in quarterly information that does not sum to the year-to-date totals because the beginning and ending dates for timing of a transfer may be different in a year-to-date disclosure than in a quarterly disclosure.
Reporting entities need to disclose transfers into Level 3 separate from transfers out of Level 3. However, they may exclude from the Level 3 rollforward instruments purchased and sold or transferred in and out of Level 3 in the same period.
Example FSP 20-1 illustrates the requirements for disclosure of amounts transferred into Level 3 in the Level 3 rollforward.
EXAMPLE FSP 20-1
Transfers into Level 3 in the rollforward
For purposes of the Level 3 rollforward, FSP Corp’s accounting policy is to show transfers into and out of Level 3 at the beginning of the quarter.
FSP Corp holds Investment A. The value of Investment A, a trading security, changes during the six-month period as follows:
1/1/20X8
$100
Unrealized loss
$(5)
3/31/20X8
$95
Unrealized loss
$(10)
6/30/20X8
$85
Investment A is classified as Level 2 at 1/1/20X8 and 3/31/20X8. Management transfers Investment A in the second quarter ending 6/30/20X8 and classifies it as Level 3 at that date. There are no other Level 3 securities.
What amounts should be included in the disclosure for the quarter and year-to-date periods for items transferred into Level 3 during the quarter?
Analysis
The rollforward table required to be disclosed would be as follows:
Level 3 rollforward
3 months ended
6/30/20X8
6 months ended
6/30/20X8
Beginning balance
$0
$0
Transfer in
$95
$95
Unrealized loss
$(10)
$(10)
Ending balance
$85
$85
Amount of unrealized loss for the period included in income relating to assets held at the end of the reporting period
$(10)
$(10)
View table
Because FSP Corp has a policy that all transfers are deemed to occur at the beginning of the quarter, the unrealized loss while classified as a Level 3 investment is ($10), whereas a policy that considered the transfers as of the beginning of the period (1/1/20X8) would have reflected a cumulative year-to-date unrealized loss of ($15).
Transfer out of Level 3
Assume instead that Investment A is classified as Level 3 at 1/1/20X8 and 3/31/20X8. Management transfers Investment A out of a Level 3 measurement in the quarter ending 6/30/20X8 and classifies it as Level 2 at that date.

Example FSP 20-2 illustrates the disclosure of amounts transferred out Level 3 in the Level 3 rollforward.
EXAMPLE FSP 20-2
Transfers out of Level 3 in the rollforward
What amounts should be included in the disclosure for the quarter and year-to-date periods for items transferred out of Level 3 during the quarter?
Analysis
The rollforward table required to be disclosed would be as follows:
Level 3 rollforward
3 months ended
6/30/20X8
6 months ended
6/30/20X8
Beginning balance
$95
$100
Transfer out
$(95)
$(95)
Unrealized loss
$(0)
$(5)
Ending balance
$0
$0
Amount of unrealized loss for the period included in income relating to assets held at the end of the reporting period
$(0)
$(5)
Because FSP Corp recorded the transfer as of the beginning of the quarter (i.e., 4/1/20X8), the unrealized loss during the three months ended June 30, 20X8 is not part of the rollforward. For the same reason, the unrealized loss reported in the first quarter is reflected in the rollforward for the six month period ended June 30, 20X8.
In this example, if FSP Corp were to deem transfers as occurring at the beginning of the year-to-date period (January 1 for the year-to-date six months ended June 30), it would result in different disclosures.

20.3.1.3 Contractually restricted equity securities – post adoption of ASU 2022-03

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurements of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarified that a contractual restriction on the sale of an equity security (for example, an underwriter lock-up agreement) is not considered part of the unit of account of an equity security. As a result, such restriction is not considered in measuring fair value of the equity security. ASU 2022-03 also added the following new disclosure requirements:
  • The fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet
  • The nature and remaining duration of the restriction(s)
  • The circumstances that could cause a lapse in the restriction(s)
Equity securities that are included in other disclosures and that are restricted due to being pledged as collateral are not included in the information required to be provided in the above disclosures so as not to duplicate disclosures. We view the phrase “reflected in the balance sheet” to apply to all equity securities that are contractually restricted as of the balance sheet date and that are measured at fair value in accordance with ASC 820.
ASU 2022-03 notes the following when disclosing the above information: “Registrants should consider the guidance in 820-10-50-1D, including how much aggregation or disaggregation to undertake when disclosing that information. A reporting entity may have multiple investments in equity securities subject to contractual sale restrictions, none of which are individually material or have distinct features that affect the nature or remaining duration of the restrictions. In that case, the reporting entity may decide to disclose the information required by the amendments in the aggregate. If one or a number of investments in equity securities were individually material or had distinct features that would affect the nature or remaining duration of the restriction, a financial statement user may consider more disaggregated information to be decision useful.”
An investment company, as defined in ASC 946, that continues to incorporate a discount in the valuation of equity securities subject to contractual sale restrictions that were executed prior to the adoption of ASU 2022-03 and not subsequently modified, in accordance with the specific transition guidance for investment companies, will be required to disclose the following:
  • The fair value of equity securities subject to a contractual sale restriction on the statement of financial position to which the entity continues to apply a discount
  • The nature and remaining duration of the contractual sale restriction
  • The circumstances that could cause a lapse in the restriction
ASU 2022-03 is effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.
See FV 4.8 for additional guidance on the fair value measurement of restricted securities.

20.3.2 Disclosures of valuation techniques and unobservable inputs

The following figure includes the qualitative and quantitative fair value disclosure requirements relating to valuation techniques and inputs. The concepts of valuation techniques and significant inputs are addressed in FV 4.
Figure FSP 20-2 summarizes fair value disclosure requirements for valuation techniques and significant unobservable inputs
Figure FSP 20-2
Fair value disclosure requirements for valuation techniques and significant unobservable inputs
Disclosure requirement for each class of asset and liability
ASC reference
Related information
For recurring and nonrecurring Level 2 and Level 3 fair value measurements, a description of the valuation technique(s) and the significant unobservable inputs used in measurement
If the reporting entity has changed its valuation approach or valuation technique, the change and the reason for making it
(For further discussion, see FSP 20.3.2.1.)
820-10-50-2(bbb)(1)
This does not apply to instruments for which fair value is only disclosed.
For Level 3 fair value measurements, quantitative information about all significant unobservable inputs used in the fair value measurement (the “table of significant unobservable inputs”)
Upon adoption of ASU 2018-13, the range and weighted average of the inputs disclosed
820-10-50-2(bbb)(2)
This does not apply to Level 3 instruments measured at fair value under the fair value option or assets and liabilities for which fair value is only disclosed.
For further discussion, see FSP 20.3.2.2 through FSP 20.3.2.3.
For recurring Level 3 fair value measurements, a narrative description of the uncertainty of the fair value measurement at the reporting date from use of the significant unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement
If there are interrelationships between those inputs and other significant unobservable inputs used in the fair value measurement, also provide a description of those interrelationships and how they might magnify or mitigate the effect of changes in unobservable inputs (i.e., the ones disclosed) on the fair value measurement.
For further discussion, see FSP 20.3.2.4.

20.3.2.1 Change in valuation approach or valuation technique

ASC 820-10-50-2 requires reporting entities to disclose the valuation approach and technique used by class of instrument for valuations that fall in Levels 2 and 3 of the fair value hierarchy. In certain cases, a reporting entity’s valuation policy may permit a choice among valuation techniques or approaches, or may require the use of multiple approaches and/or techniques depending on market conditions and the availability of data that maximizes the use of observable market information. For example, if a reporting entity observes a recent sale of a security that it holds (or a similar security), it may use that price as a basis for their valuation (a market approach). However, if there is not a recent transaction, the reporting entity may choose to use a discounted cash flow analysis (an income approach). If the reporting entity changes the valuation approach and/or technique, it should disclose the change for each class of instrument (not for each individual instrument). This disclosure requirement applies to both recurring and nonrecurring measurements characterized in Levels 2 and 3 of the fair value hierarchy.
Reporting entities may limit disclosure to only address changes from the established valuation policy for each class of instrument at the measurement date. They need not disclose a change in actual valuation approach or technique used if the approaches/techniques are consistent with the existing policy. In the example of an entity observing a recent sale of a security that it holds (or a similar security), no disclosure of the change in approach/technique would be required if both techniques were contemplated by the policy and disclosed.

20.3.2.2 Table of significant unobservable inputs

Quantitative disclosure of all significant unobservable inputs is required even though reporting entities only have to identify one significant unobservable input to conclude that a fair value measurement should be classified as Level 3. ASC 820’s disclosure requirements, however, require reporting entities to identify all significant unobservable inputs and disclose quantitative information about them. For discussion of how to determine whether an input is significant, see FV 4.5.2.
Level of disaggregation — table of significant unobservable inputs
The quantitative disclosures of significant unobservable inputs are presented by class of asset and liability. Reporting entities need to apply judgment to determine the appropriate classes of assets and liabilities and should provide information sufficient to reconcile to the line items on the balance sheet. Although the disclosure requirements of the fair value standard do not specifically require disclosing such a reconciliation, it has become a leading practice.
The fair value standard does not prescribe the level of disaggregation (below the class level of asset and liability), but it does state that fair value measurements will often require greater disaggregation than the line items in the balance sheet and a reporting entity should determine classes based on the nature, characteristics, and risks of the assets and liabilities. The disclosure should contain sufficient detail to allow users to understand the significant unobservable inputs and how they vary over time.
When considering how detailed the quantitative disclosures should be, a reasonable starting point is an evaluation of the classes for each of the assets and liabilities included in other fair value disclosures (e.g., the fair value hierarchy), followed by consideration of the nature and risk of the types of assets and liabilities and inputs in each class. The objective of this exercise is to determine whether there are reasonable levels of homogenous pools of inputs for the Level 3 assets and liabilities that can be separated out of the related class.
The classification of measurements in the fair value disclosures as Level 3 assets or liabilities typically affects the level of disaggregation (i.e., the number of classes may need to be greater for fair value measurements using significant unobservable inputs). ASC 820-10-50-2B indicates that using the classes determined in other standards (e.g., ASC 320) is acceptable.
For example, a reporting entity’s derivative assets and liabilities may be disaggregated at the class level (e.g., interest rate instruments, commodity instruments, and foreign exchange rate instruments). However, the reporting entity’s commodity instruments may comprise a number of different types of commodities that do not share similar risk characteristics. The reporting entity may conclude that disaggregating its commodity derivatives by type of commodity would provide more meaningful information.
Similarly, a reporting entity may disaggregate mortgage-backed securities into residential and commercial securities, or disaggregate private equity securities by industry.
See ASC 820-10-55-100 for an example of disaggregation disclosure, including the reconciliation.
Inputs to inputs
Level 3 fair value measurements may contain a number of unobservable inputs. The unobservable inputs may be developed using a variety of assumptions and “underlying” unobservable inputs (e.g., a number of assumptions are used to arrive at a long-term growth rate input).
We would generally not expect these underlying inputs used to develop significant unobservable inputs (“inputs to inputs”) to be included in the quantitative disclosures. Most inputs use underlying assumptions; the disclosure of these underlying assumptions could result in a significant amount of additional information being disclosed, adding unnecessary complexity to the disclosure. As a result, the overall disclosure could become less understandable. We believe inclusion of such information is beyond the scope of the disclosure requirement.
In addition, the example in ASC 820-10-55-103 includes disclosure of inputs such as weighted average cost of capital, long-term revenue growth rate, and long-term pretax operating margin. These unobservable inputs are based on a variety of assumptions. For example, a weighted average cost of capital input may include a number of assumptions such as the risk-free rate, effective tax rate, required equity rate of return, and the proportion of debt versus equity. These underlying inputs are not included in the example disclosure.
Derivative assets and liabilities and their related significant unobservable inputs
We believe that derivative assets and liabilities should generally be presented on a gross basis by type of derivative in the fair value hierarchy table and the table of significant unobservable inputs.
Range and weighted average of significant unobservable inputs
Upon adoption of ASU 2018-13, reporting entities will be required to disclose the range and weighted average of the significant unobservable inputs and the way it is calculated. This is to de-emphasize the impact of outliers. Assuming like portfolios, weighted averages aid in comparing disclosures for different reporting entities. If a weighted average is not meaningful for a particular asset class (e.g., derivatives), a reporting entity may disclose alternative quantitative information if the alternative quantitative information is a “more reasonable and rational method to reflect the distribution” of the inputs. It need not disclose the reason for omitting the weighted average.

Excerpt from ASC 820-10-50-2(bbb)(2)(i)

For certain assets and liabilities, a reporting entity may disclose other quantitative information, such as the median or arithmetic average, in lieu of the weighted average as described in this subparagraph, if such information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop the Level 3 fair value measurement.

20.3.2.3 Third-party pricing disclosure

Management is responsible for the valuation process and should perform sufficient diligence over the fair value measurements and inputs obtained externally, including the related fair value hierarchy level determinations.
However, ASC 820-10-50-2(bbb)(2) allows a reporting entity to omit certain quantitative disclosures if the significant unobservable inputs are not developed by the reporting entity. The “third-party pricing exception” may be applied if a reporting entity uses the price obtained from a prior transaction or a third party without significant adjustment. Consequently, significant adjustments would invalidate the third-party pricing exception and require the reporting entity to make the quantitative disclosures in ASC 820-10-50-2(bbb).
When contemplating use of the third-party pricing exception, a reporting entity should make a reasonable attempt to obtain information from third parties about unobservable inputs that are significant to the fair value measurement.
Even if the reporting entity elects the third-party exception, it should provide the qualitative uncertainty disclosures discussed in FSP 20.3.2.4 for any significant inputs if required by ASC 820-10-50-2(g) and reasonably available.
Under ASC 820-10-55-104(b), reporting entities that use third-party pricing for their fair value measurements should also consider whether it is appropriate to disclose how third-party information such as broker quotes, pricing services, net asset values, and relevant market data were considered in the measurement of fair value. Whenever a reporting entity uses unobservable inputs it has not developed, it should consider disclosing information to allow users of the financial statements to understand how it has used those inputs in its fair value measurements. Specific disclosures could include the following:
  • How and the extent to which the reporting entity uses brokers and pricing services to determine its fair value measurements
  • The nature and amount of assets valued using brokers or pricing services
  • The classification of the assets and liabilities valued based on brokers or pricing services in the fair value hierarchy
  • Information on the use of multiple broker quotes
  • The reasoning and methodology for any adjustments made to prices from brokers or pricing services
  • The extent to which the brokers are using observable market information as compared to proprietary models and unobservable data
  • Whether the quotes are binding
  • Procedures performed to validate the fair value measurements

20.3.2.4 Disclosure of measurement uncertainty

ASC 820-10-50-2(g), as amended by ASU 2018-13, requires a narrative disclosure about the uncertainty of recurring Level 3 fair value measurements to certain changes in significant unobservable inputs by asset class. This guidance requires the potential effect of changes in unobservable inputs to be described if the changes might have resulted in a significantly different fair value measurement at the measurement date. The intention of the disclosure is to convey information about measurement uncertainty at the reporting date, not in the future.
Reporting entities are not required to quantify the potential changes in the inputs or the fair value measurements. They typically elaborate on the uncertainty of significant unobservable inputs associated with each type of classification included in the quantitative recurring Level 3 disclosure.
See ASC 820-10-55-106 for an example disclosure of the uncertainty analysis.

20.3.3 Concentrations of credit risk disclosures

Reporting entities are required to disclose all significant concentrations of credit risk arising from financial instruments. This disclosure applies to significant credit risk from an individual counterparty or groups of counterparties if those counterparties are engaged in similar activities and have similar economic characteristics (referred to as “group concentrations”).
Figure FSP 20-3 identifies the required disclosures for each significant concentration. These requirements are not applicable to the financial instruments referenced in ASC 825-10-50-22, which include financial instruments of a pension plan and the securities described in ASC 825-10-50-8(a), ASC 825-10-50-8(c), ASC 825-10-50-8(e), and ASC 825-10-50-8(f), except for reinsurance recoverables and prepaid reinsurance premiums.
Figure FSP 20-3
Required disclosures for each significant concentration of credit risk
Disclosure requirement
Related information
Information that identifies group concentrations
Shared activity, region, or economic characteristic
Maximum amount of loss due to credit risk
Amount the reporting entity would incur if counterparties failed based on the gross fair value of the financial instrument, and assuming the collateral proved to be of no value to the reporting entity
Collateral
  • The reporting entity’s policy of requiring collateral
  • The reporting entity’s access to that collateral
  • The nature and description of the collateral
Master netting arrangements
  • The reporting entity’s policy of entering into master netting arrangements
  • The arrangements to which the reporting entity is a party at the balance sheet date
  • A description of the terms of the arrangements, including their ability to reduce the reporting entity’s maximum amount of loss

20.3.4 Market risk of all financial instruments

Reporting entities are encouraged to disclose quantitative information about the market risk of financial instruments, while taking into consideration its management of those risks. These disclosures will likely differ and evolve for each reporting entity. Example quantitative disclosures are included in ASC 825-10-50-23, and reporting entities are encouraged to develop others when appropriate. This is in addition to the information regarding market risk of financial instruments in the MD&A that is required by Financial Reporting Release 48.
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