Fair value measurements often require the application of significant judgment. The SEC staff has focused on the quality of disclosure about those significant judgments and estimates, frequently commenting on:
  • the valuation techniques and key inputs used to determine the fair value for each significant class of asset or liability, whether determined by management or a third party (e.g., independent pricing service);
  • the quantitative information provided for significant unobservable inputs used in Level 3 fair value measurements, including the sensitivity of the fair value measurement to changes in those significant unobservable inputs; and
  • the process and appropriateness in determining that investments reported at NAV (Net Asset Value) met the requirements to be measured at NAV.
Comment examples (generalized to identify overarching themes, with specific details pertaining to individual companies omitted)
Guidance references
  • You indicate the securities included in Level 2 of the fair value hierarchy are valued utilizing inputs obtained from an independent pricing service. Please tell us what consideration was given to disclosing a description of the valuation techniques and inputs used in the fair value measurements. In addition, tell us what consideration you gave to separately disclosing the valuation techniques and inputs for each class of assets. We refer you to ASC 820-10-50-2 and ASC 820-10-50-2(bbb).
  • Please disclose quantitative information about the significant unobservable inputs used in developing the fair value of your Level 3 assets and liabilities. Also, tell us what consideration was given to providing a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs. Please refer to ASC 820-10-50-2(bbb) and (g).
  • It does not appear that your valuation complies with the guidance in ASC 820-10-35. That is, the fair value measurement should assume that the transaction takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability. Additionally, ASC 820-10-05-1c specifically states that the fair value estimation must maximize the use of relevant observable inputs.
  • Please tell us how you complied with the non-recurring fair value measurement disclosures related to the impairment charge, as required by ASC 820-10-50-2. Also refer to the example of these disclosures at ASC 820-10-55-100.
  • Please revise to disclose the nature of the valuation technique(s) and inputs used in the fair value measurement of assets held for sale, as of the date of the latest balance sheet. Refer to ASC 820-10-50-2(bbb).
  • We note that virtually all Major U.S. Plan assets, except for investment grade bonds, are measured at NAV. Please explain to us what steps you took in determining that each individual investment within the reported NAV plan assets met the requirements of ASC 820-10-15-4 to be measured at NAV. Please also clarify how you applied the guidance in FASB ASC 820-10-35-60 in considering whether adjustments to the most recent net asset values were necessary.
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