Fair Value Measurement Disclosures of Private Company Equity Securities by Employee Benefit Plans
Last updated on July 9, 2013.
(Updated sections are indicated with an asterisk *)
The objective and primary focus of this project is to address an issue brought to the FASB’s attention involving proprietary information of private companies in GAAP financial statements being made public in connection with regulatory filings of employee benefit plans holding those securities.
*Due Process DocumentsOn July 8, 2013 the Board completed this project with the issuance of Accounting Standards Update No. 2013-09, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04.
Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued in May 2011 to amend Topic 820. The amendments in the Update apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity’s shareholders’ equity in the financial statements. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. Paragraph 820-10-50-2(bbb) states the following:
For recurring and nonrecurring fair value measurements categorized within Level 2 and 3 of the fair value hierarchy, a description of the valuation technique(s) and the inputs used in the fair value measurement. For fair value measurements categorized within Level 3 of the fair value hierarchy, a reporting unit shall provide quantitative information about the significant unobservable inputs used in the fair value measurement.
Constituents suggested that the Board make an exception for certain quantitative and qualitative required disclosures related to private company employer securities held by nonpublic employee benefit plans. Although the disclosures are required for each class of assets or liabilities, generally, the investment in the private company plan sponsor’s equity securities is the only Level 3 measurement in the financial statements of many nonpublic employee benefit plans and, therefore, there is only one asset within the class. Those disclosures would provide the public with information regarding the private companies that otherwise would not be available. Historically, the primary user of the nonpublic employee benefit plan financial statements has been the Department of Labor (DOL). For plan years 2009 and subsequent thereto, the Form 5500’s, inclusive of the plan’s audited financial statements and related disclosures have been made available to the public via the DOL’s website. As a result, unintended users could gain access to the plan’s audited financial statements and related disclosures. The required disclosures could potentially give insight into the operations of the private company, its financial condition, and the process and methodology for determining the fair value of the private company employer securities. Collectively, those disclosures could allow unintended users of the financial statements to recreate a financial picture of the company, which ultimately could be damaging to the company and its employee-owners.
Board/Other Public Meeting Dates
The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.
|June 12, 2013||FASB Board Meeting—Respondent Summary and Due Process Matters|
|April 10, 2013||FASB Board Meeting—Agenda Announcement|
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