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Has Your Investment Fund or Business Adopted ASU 2018-13 yet?

December 01, 2020

While ASU 2018-13 guidance came out in 2018, some entities have not yet adopted this standard. If that applies to your business, here’s what you need to know.

Reminder: In August 2018, the Financial Accounting Standards Board (the “FASB”) released Accounting Standards Update (ASU) 2018-13 Fair Value Measurement (Topic 820) Disclosure Framework ­­-- Changes to the Disclosure Requirements for Fair Value Measurement. If you haven’t adopted this standard yet, now is the time as it is effective this year.

Let’s dive into ASU 2018-13

The amendments in this ASU apply to all entities that are required to make disclosures about recurring and nonrecurring fair value measurements, including investment funds. Some investment funds chose to early adopt the provisions of this ASU; if you manage an investment fund, or other entity, and haven’t early adopted please be aware that the amendments are effective for fiscal years, and interim periods, beginning after December 15, 2019 (i.e. fiscal year-end December 31, 2020).

The main provisions of this ASU that will affect your nonpublic investment fund’s footnotes include the following:

  • Removed the following previously required disclosures related to:
    1. transfers between Level 1 and Level 2 investments and the policy for timing of transfers between levels
    2. changes in unrealized gains and losses for recurring Level 3 investments*
    3. the valuation processes for Level 3 fair value measurements
  • The Level 3 rollforward requirement was modified to only require disclosure of purchases, issuances and transfers into or out of Level 3*

These amendments provided some needed disclosure relief for investments held at fair value and helped to improve financial statement users’ understanding of the disclosures. While disclosure requirements were removed for policies related to transfers and valuation processes, from a practical and control standpoint it is important to keep these policies in place and follow them consistently.

If you have any questions on how these provisions will affect your financial statement footnotes or would like assistance in updating your current disclosures please reach out to us.

*These provisions are not applicable for public entities.

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