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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 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

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