The FASB's framework for measuring fair value continues to challenge preparers, particularly with regards to the latest disclosure requirements from the 2011 amendment.
SEC chimes in: The SEC has weighed in on the new fair value measurement disclosures that became effective for most companies in the first quarter. Their key areas of focus have included: interrelationships between unobservable inputs; quantitative disclosure of unobservable inputs; and expanded disclosures about valuation techniques used for Level 2 inputs. For more information around these requirements, read Dataline 2012-20 below.
The 2011 amendment− subtle change, not-so-subtle impact?: The FASB's amendment changed the definition of "principal market." It is now defined as the market with the greatest volume and level of activity for the asset or liability, as long as the entity has access to that market. This represents a change from prior guidance, which had indicated that the principal market is the market in which the reporting entity transacts the greatest volume and level of activity for the asset or liability. While the consequence of this change may not be significant for many entities, fair values could differ, for example, for an entity that transacts in markets that many other entities cannot access. For more information on this change, read chapter 4 of PwC's Guide to Accounting for Fair Value Measurements.
Keep an eye on how public companies incorporate SEC disclosure feedback in their first annual filings under the new guidance. For nonpublic companies, the guidance is also about to become reality (effective for annual periods beginning after December 15, 2011).