The FASB provides additional guidance on determining the fair value of certain alternative investments, such as interests in private equity, venture capital, and hedge funds.
The FASB decided to provide additional guidance related to determining the fair value of certain alternative investments, such as interests in private equity, venture capital, and hedge funds, in accordance with FASB Statement No. 157, Fair Value Measurements.
The scope of the proposed guidance would be limited to investments in entities that apply the AICPA Audit and Accounting Guide, Investment Companies, with a scope exception for exchange traded funds (for example, a registered closed-end fund that is actively or inactively traded).
The Board decided that an investor entity would estimate the fair value of its interests in alternative investments using the net asset value as of the investor entity's financial statement date, as long as the net asset value has been calculated in accordance with the investment companies Guide.
The proposed guidance also would require an investor entity to disclose the fair value (net asset value) of investments in alternative investments and:
Ø For an interest in a private equity fund, the investor's best estimate of the fund's remaining life
Ø The investor's best estimate of the amount and timing of any remaining capital commitments
For an investment with redemption rights:
Ø The terms and conditions upon which the investor may redeem its investment (for example, quarterly redemption with 60 days' notice).
Ø The terms and conditions of any restrictions that would (or could) temporarily preclude redemption by the investor, including the investor's best estimate of when the restriction will lapse.
The proposed guidance would be effective upon issuance and would be applied prospectively to any periods for which financial statements have not been issued. Revisions to values of interests in alternative investments resulting from a change in the valuation technique or its application should be accounted for as a change in accounting estimate. The disclosure provisions of FASB Statement No. 154, Accounting Changes and Error Corrections, for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its application.
The Board directed the staff to proceed to a draft of a proposed FSP for vote by written ballot. The Board plans to issue that proposed FSP for public comment on or about May 22, 2009, with a 30-day comment period.
Deadline for comments is 1 June 2003.
Measuring Liabilities under FASB Statement No. 157
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