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Fair Value Measurement and Application


Minutes of Meetings, October 29-31, 2013

The Board reviewed a paper that summarized comments received on the Preliminary Views, Fair Value Measurement and Application, and tentatively agreed to proceed with the project plan as presented in the latest technical plan.


Minutes of Meetings, June 3, 2013

The Board reviewed a ballot draft of the Preliminary Views, Fair Value Measurement and Application. Regarding the section of the Preliminary Views that describes the fair value hierarchy of inputs, the Board asked the staff to add an example that would illustrate a Level 3 input. After making minor clarifying changes, the Board voted unanimously to issue the Preliminary Views, subject to approval of the requested example.

Minutes of Meetings, May 14–16, 2013

The Board reviewed a preballot draft of the Preliminary Views, Fair Value Measurement and Application, and provided recommendations and suggestions for clarification on the draft document. The Board tentatively decided that the proposed change in the application of amortized cost should be highlighted in the question for respondents addressing measurement of investments. The Board also tentatively decided to propose that disclosures be required for all recurring and nonrecurring fair value measurements. The Board tentatively agreed that a draft of the text of a proposed Statement should not be included as an attachment in the Preliminary Views. The Board then directed the project staff to prepare a ballot draft for consideration at the June teleconference.

Minutes of Meetings, April 2–4, 2013

To address potential concerns raised by the staff during the development of the standards section of a proposed Exposure Draft, the Board discussed whether to issue a Preliminary Views document prior to issuance of an Exposure Draft. After considering the potential benefits of conducting further constituent outreach activities that would result from an additional step to the project’s due process, the Board tentatively decided to issue a Preliminary Views in June 2013.

The Board considered the project staff’s research on the disclosure of the sensitivity of fair value measurements to changes in unobservable inputs and tentatively agreed to keep the originally proposed wording of the disclosure guidance. To address the level of detail and disaggregation in note disclosures, the Board tentatively agreed to propose guidance that combines the disclosure requirements in Statement No. 40, Deposit and Investment Risk Disclosures, with additional considerations for determining the appropriate level of disaggregation.

The Board then deliberated investments in common stock, concentrating on criteria for application of the equity and cost methods found in paragraphs 202–204 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The Board tentatively decided to propose that investments in certain entities that calculate net asset value per share should not be eligible for the equity method. Likewise, common stock investments held by endowments should not be eligible for the equity method. These foregoing investments should be measured at their fair values. In a reversal of a previous tentative decision, the Board tentatively agreed not to replace the term investment and related terms in these paragraphs. Instead, the Board would propose that clarifying language be added to Statement 62 provisions. If a government owns common stock that meets the criteria for the equity method and that ownership does not meet the definition of an investment, the equity method may nevertheless be applied. The Board also tentatively decided to propose the elimination of the cost method from GASB guidance for investments in common stock.

The Board tentatively also decided to reverse two other previous tentative decisions. First, the Preliminary Views document should remain silent as to whether split-use property should be allocated according to its uses to be consistent with a previous tentative decision not to bifurcate assets to determine if the definition of investment would apply. Second, the Preliminary Views document should provide no specific guidance on present value techniques. Guidance is expected to be provided in a future project that specifically addresses present value.

The Board tentatively decided to not include guidance on initial measurement that would address treatment of “day-one” gains and losses.

The Board tentatively decided to propose that transaction costs be reported as period costs and not be taken into account in fair value measurements. To be consistent, the existing provisions for defined benefit pension and OPEB plans—where transaction costs currently reduce fair value measurements—would be proposed to be changed accordingly. The Board considered transition guidance and tentatively agreed to propose that the transition provision be prospective application with an option to apply fair value retrospectively as of the beginning of the current period.

Finally, the Board reviewed a draft of the Standards section of the proposed fair value Statement that would be presented as an appendix in the Preliminary Views and provided clarifying edits.

Minutes of Teleconference, March 11, 2013


The Board deliberated issues on the topics of fair value disclosures, management’s discussion and analysis (MD&A) requirements, and conforming edits in preparation for the Fair Value Exposure Draft.

Continuing the fair value disclosures discussion, the Board was provided with examples of asset and liability disclosures that are organized by classes and types, as well as examples of narrative descriptions of the sensitivity of fair value measurements to changes in unobservable inputs. After the Board considered the examples, the Board tentatively agreed to propose the following:
  • The determination of appropriate classes and types of assets and liabilities should be made on the basis of the nature, characteristics, and specific types of risks of the asset or liability as well as the level of the fair value hierarchy within which the fair value measurement is categorized. 
  • A more general disclosure regarding investment class and type would be sufficient, leaving disaggregation up to professional judgment. However, the Board tentatively agreed that some guidance should be provided that would indicate when there should be further disaggregation. The Board requested that the project staff provide a draft of the requirement for the April meeting. 
  • Affirming its earlier tentative decision, a narrative description of the sensitivity of a fair value measurement to changes in unobservable inputs should be a disclosure. The Board requested that the project staff provide an illustration with the appropriate amount of detail and information for deliberation at the April meeting.
The Board considered new fair value disclosure topics and tentatively agreed to propose the following:
  • Additional fair value disclosures for investments in certain entities that calculate net asset value per share (or its equivalent) 
  • All disclosures required for a recurring fair value measurement also should be required for a nonrecurring fair value measurement, with the exception for Level 3 measurements of a narrative description of the measurement’s sensitivity to changes in unobservable inputs.
The Board tentatively agreed not to propose a disclosure, if applicable, that a nonfinancial asset is used in a manner different than its highest and best use and why it is being used in a different manner.

The Board then addressed the subject of MD&A requirements and tentatively agreed that current GASB MD&A requirements sufficiently encompass fair value information and that no new requirements should be proposed.

Finally, the Board addressed areas within current GASB literature that may need revision to conform to the tentative proposals. The Board tentatively agreed to propose the following revisions:
  • Guidance for donated works of art, historical treasures, and similar assets and guidance for capital assets acquired through a nonexchange transaction should be amended so that “fair value” is replaced with “acquisition value,” consistent with the tentative decision to measure donated capital assets at acquisition value
  • For assets received in a nonmonetary transaction, when the value of the asset received is more clearly evident than the fair value of the asset surrendered, the revision of “fair value” to “acquisition value” for measuring the value of the asset received
  • The revision of Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, paragraph 9, so that transferor governments measure a capital asset received through a service concession arrangement at its acquisition value (instead of fair value) when placed in operation
  • When prior-period adjustments are recorded and financial statements only for a single period are presented, the disclosure of the effects of such restatement should be limited to the effects on the beginning balance of net position. The effect of this tentative decision would be to delete the disclosure related to “the change in net assets of the immediately preceding period” currently found in Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, paragraph 62. 
  • The revision of “investment in” to “ownership of” and related terms adjusted accordingly in the GASB guidance for investment in common stock, chiefly paragraphs 202–210 of Statement 62.
On this last point, the Board also discussed implications of changing the criteria for use of the equity or cost method, and the Board asked the project staff to further research the issue and provide the Board with additional analysis at the next meeting.

Minutes of Meeting, February 19-21, 2013

As a continuation of the application portion of the fair value measurement and application project, the Board deliberated fair value disclosures. The Board tentatively agreed to propose the following disclosures:
  • Valuation techniques and inputs, replacing existing disclosures of methods and significant assumptions
  • The effect of the measurements on investment income for recurring fair value measurements using significant Level 3 unobservable inputs
  • For the two preceding tentative disclosures, the level of detail and aggregation should consider the following:
    • The level of detail necessary to satisfy the disclosure requirements
    • How much emphasis to place on each of the various requirements
    • How much aggregation or disaggregation to undertake
    • Whether users of financial statements need additional information as described in this Statement to evaluate the quantitative information disclosed.
  • Values measured using Level 3 inputs, compared to the level of detail for values measured using Level 1 and Level 2 inputs
  • Fair value measurements by asset and liability class and level of the fair value hierarchy, either in a table or a narrative
  • Quantitative information about significant Level 3 inputs as well as disclosure of the valuation techniques and inputs used in Level 2 and Level 3 fair value measurements
  • Changes in a valuation technique that have a significant impact on the resulting measurement
  • A narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs for fair value measurements categorized within Level 3.
If another part of the GASB literature specifies disclosures according to a class or type for that asset or liability, fair value disclosures may be consistent with that class or type.

The Board tentatively agreed not to propose the following disclosures:
  • A specific disclosure requirement that enough information be provided to permit reconciliation of disclosed amounts to the line items presented in the statement of net position
  • Reconciliation of opening to closing balances for items within Level 3 of the fair value hierarchy
  • Amount of transfers between levels in the fair value hierarchy of assets and liabilities, the reasons for those transfers, and the policy for determining the timing of those transfers
  • Disclosure of the effect on the resulting measurement of using alternative inputs
  • Disclosure of the valuation processes used in fair value measurements with Level 3 inputs.
Finally, the Board tentatively decided that consistent application and disclosure of accounting policy and policy changes as provided in Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, paragraph 90, should be referenced in the Basis for Conclusions of the standard.

The Board requested that the project staff research corporate financial statements to provide examples of asset and liability disclosures that are organized by classes and types. The Board also requested that the project staff provide examples of narrative descriptions of the sensitivity of fair value measurements to changes in observable inputs that pertain to alternative investments. Results of the research will be discussed at the March teleconference.

In conjunction with the conceptual framework project, the Board also tentatively decided that one of the tentative proposals developed previously in the fair value measurement and application project—that capital assets held for sale should be reported at the lower of cost or fair value—should be withdrawn. The Board tentatively agreed that capital assets held for sale should not be classified as investments and, therefore, are not in the scope of the fair value project.

Minutes of Teleconference, January 28, 2013

The Board considered additional issues related to the application of fair value, specifically accounting for land and natural resources and government-held life insurance. The Board tentatively agreed to propose that fair value measurement apply to natural resource assets that are investment assets. The Board then deliberated accounting for government-held life insurance policies. The Board tentatively agreed that the current measurement guidance, cash surrender value, should be retained without modification. Finally, the Board tentatively agreed that there should be no modification of the already tentatively agreed upon definition of life settlement contracts.

Minutes of Meeting, January 8-9, 2013

The Board considered additional application issues related to the topic of fair value and its incorporation into the existing body of GASB literature. The Board considered how fair value meets the qualitative characteristics of information in financial reporting as described in GASB Concepts Statement No. 1, Objectives of Financial Reporting. The Board tentatively agreed that fair value measures for investments are consistent with the qualitative characteristics of information in financial reporting.

The second topic considered by the Board was lending assets. The Board discussed whether lending assets that meet the definition of an investment asset should be classified as such. The Board tentatively agreed to propose that lending assets held primarily for the purpose of income or profit and that have present service capacity based solely on their ability to generate cash, to be sold to generate cash, or to procure services for the citizenry (the proposed definition of an investment) should be classified as investments. Concerns were raised, however, over the impact of such guidance on state-owned or tribal-government-owned financial institutions. The project staff will research this issue further and report back to the Board. The Board tentatively agreed to propose that lending assets held primarily to provide a direct government service should be classified as loans receivable.

The Board specifically addressed mortgage loan assets and tentatively decided to propose that, consistent with the other tentative decisions, mortgage loans meeting the proposed definition of an investment asset should be classified as such and those that are a direct government service should be classified as loans receivable. The Board tentatively decided to propose that, consistent with previous tentative decisions in this project, lending assets (including mortgages) that are classified as investments should be measured at fair value.

The Board also discussed existing specific guidance for mortgage loans held by public entity risk pools and other insurance organizations. The Board tentatively decided to propose elimination of this specialized guidance.

The final issue discussed was that of donated capital assets. The Board discussed whether donated capital assets should continue to be measured at fair value or whether they should be measured at acquisition value, which is defined as a market-based entry value. The Board believes that an entry value is more appropriate than an exit value for capital assets received through donation. For that reason and to maintain consistency with Statement No. 69, Government Combinations and Disposals of Government Operations, the Board tentatively decided to propose that donated capital assets be measured at acquisition value.

Minutes of Meeting, November 28-30, 2012

The Board tentatively agreed that the scope of the fair value measurement and application project should be limited to assets and liabilities that are already measured at fair value and to investment assets that have not been measured at fair value.

Minutes of Meeting, October 2-4, 2012

The Board considered additional application issues related to the topic of fair value and its incorporation into the existing body of GASB literature. The first topic considered was split-interest agreements. The GASB currently addresses the topic of split-interest agreements through its Comprehensive Implementation Guide (CIG). After considering the extent of this topic, the Board tentatively decided not to address further split-interest agreements beyond what is currently in the CIG. The Board also tentatively decided that Question 7.72.11 should be revised to clarify that it only addresses those split-interest agreements in which a government acts as the trustee. The Board will decide whether to leave the question in the CIG or incorporate it into a fair value Exposure Draft pending future decisions in the GAAP hierarchy project.

The Board continued its discussion by addressing the topic of life insurance policies and life settlement contracts. The Board deliberated the appropriate method of reporting life insurance policies that are entered into as investments, how such policies should be defined within the GASB literature, and the appropriate basis of measurement. The Board tentatively agreed to propose that the measurement of life insurance policies depend on whether a policy is entered into on the basis of indemnification of loss (traditional life insurance) or on the basis of an investment (life settlement).

The Board tentatively agreed to propose that the definition of a life settlement contract is a contract in which (a) an investor does not have an insurable interest, (b) an investor provides consideration to the policy owner of an amount in excess of a current cash surrender value of the life insurance policy, and (c) a contract pays the face value of the life insurance policy to the investor when an insured dies.

The Board tentatively agreed to propose that a life settlement contract be measured based on its fair value. The Board also tentatively agreed to propose that life settlement contracts be accounted for at an individual level and that these contracts be recognized based on the net amount of the fair value of expected payments less the fair value of future premiums. The Board noted that its tentative decisions apply to contracts initially acquired as investments. These tentative decisions do not address hybrid instruments that initially are entered into as insurance but later become investments (life settlement contracts). The Board asked the fair value project staff to conduct further research on the appropriate basis of measurement of hybrid contracts before reaching a tentative decision on the issue.

Minutes of Meeting, August 22-24, 2012

The Board discussed specific application issues related to the fair value measurement and application project. The project staff first presented its findings from the additional research and user outreach requested by the Board at the July meeting. The project staff conducted a series of interviews with the Fair Value Measurement and Application Task Force and other stakeholders from a variety of backgrounds. The results of those interviews led to a discussion of potentially modifying the tentative definition of an investment asset to address bond reserve assets that provide resources set aside for the benefit of creditors. These bond reserve assets, the Board tentatively decided, meet the criteria of “based solely on its ability to generate cash” and thus are already sufficiently covered by the working definition of an investment asset.

The Board deliberated a description of an investment’s characteristics that focused on the asset’s service capacity, whether the asset is held primarily for income or profit, the asset’s ability to generate cash, and management’s intent for holding the asset. The Board focused on the use of the word “procure” in the description of characteristics. The Board tentatively agreed to propose that procuring a service is not the same as providing a service and that the reference to “procure services for the citizenry” should be presented in a footnote to clarify that “sold to generate cash” encompasses circumstances in which an investment is used to directly procure services in a noncash transaction instead of being sold to generate cash, with the cash proceeds being used to procure services. The Board also tentatively agreed to propose that the characteristics not refer to the intent of a government’s management. That reference should be limited to an indication, apart from the characteristics, that different governments holding similar assets may arrive at different determinations based on the intended purpose of an asset.

Finally, the Board tentatively agreed not to address the topic of impairment as part of the fair value measurement and application project. Instead, the Board agreed that the accounting and financial reporting issues related to impairments of investments reported at historical cost should be identified as a separate potential project in the next technical plan so that it can be considered for addition to the technical plan as a practice issue.

Minutes of Meeting, July 10-11, 2012

Definition of an Investment Asset

The Board continued with the second part of the Fair Value Measurement and Application project by discussing issues that relate to investment assets, beginning with what constitutes an investment asset. The Board tentatively decided to propose the following definition of an investment asset: “A security or other asset that a government holds primarily for the purpose of income or profit and its present service capacity is based solely on its ability to generate cash, to be sold to generate cash, or to procure services for the citizenry.” This definition, although tentative, was established to guide the Board in making decisions related to investment assets. The Board will return to the question of whether additional factors should be introduced for consideration in the proposed Statement after the project staff conducts additional research.

The Board considered whether land that includes identifiable and separable land rights could be bifurcated between the investment asset and the capital asset classifications. The Board asked the project staff to further explore the application of this concept with stakeholders before reaching any tentative conclusions.

Considering the revised tentative definition of an investment asset, the Board tentatively decided to propose that a capital asset held for sale should be reclassified as an investment asset when that asset’s service capacity is based solely on its ability to generate cash, to be sold to generate cash, or to procure services for the citizenry. The Board also tentatively agreed to propose that a capital asset held for sale that nevertheless continues to be used to provide services should be classified as a capital asset.

The Board considered real property that is partially used by the government and partially rented to other organizations—split-use property. The Board deliberated whether to classify the real property as either an investment asset or a capital asset. That is, whether the real property should be classified according to its predominant use or bifurcated in proportion to its use. The Board tentatively agreed to propose that split-use property should be bifurcated according to its proportion in use. Finally, within the discussion of what should be classified as an investment asset, the Board tentatively agreed to propose that securitized mortgage loans continue to be classified as investments under the proposed definition.

Application of Fair Value to Investment Assets

The Board tentatively agreed to propose that as a general proposition, investment assets be reported at fair value. The following are investment types that would be included in a fair value measurement proposal:
  • Investments that are already measured at fair value 
  • Alternative investments that are reported by endowments
  • Equity securities (including unit investment trusts and closed-end mutual funds), stock warrants, and stock rights that do not have readily determinable fair values
  • Intangible assets that meet the proposed definition of investments
  • Land and land rights that are classified as investments, including oil and gas properties that are classified as investments 
  • Co-mingled investment pools that are not government sponsored 
  • Invested securities lending collateral 
  • Real estate that meets the definition of an investment asset.
The following investment types were not included in this tentative decision to measure investments generally at fair value for the reasons indicated:
  • Pending the Board’s deliberation in the recognition and measurement approaches project, investments reported by governmental funds. 
  • Investments that will be addressed later in the fair value measurement and application project as follows:
    • Life insurance policies classified as investments
    • Split-interest agreements and beneficial interests (FASB Topic 958-30, Not-for-Profit Entities—Split-Interest Agreements).
  • Exceptions to fair value measurements as follows:
    • Investments that do not participate in fair value changes
    • Money market investments and investments that mature in 90 days or less reported by external investment pools. When measured on an amortized cost basis, the carrying values of these investment assets should continue to be subject to impairment considerations.
    • Investments in 2a7-like external investment pools. (The Board tentatively agreed that measurements applicable to 2a7-like external investment pools will be deliberated later in this project, once SEC proposals that would affect money market funds are determined.)
After discussing the above inclusions and exclusions to fair value measurements, the Board requested that the project staff conduct additional research with stakeholders and provide the Board with an analysis of impairment testing alternatives. The project staff will continue to monitor the progress of other accounting standards boards, especially on impairment testing, lease accounting, and not-for-profit accounting for investments. The project staff will brief the Board on new developments as they arise.

The Board tentatively agreed that for investments in debt instruments, an amortized cost measurement notion should not be proposed. The Board also tentatively agreed that it would not propose an amortized cost measurement based on a government’s business model and an investment’s cash flows.

The Board tentatively agreed to propose that when a capital asset is held for sale and its present service capacity is based solely on its ability to generate cash, to be sold to generate cash, or to procure services for the citizenry, that asset should be measured at the lower of its carrying amount or its fair value.

The Board also addressed the measurement basis of a capital asset that is classified as an investment asset that returns to its original classification as a capital asset. The Board tentatively agreed to propose that such an asset should be reclassified as a capital asset. That asset should be measured at the lower of (1) its carrying amount before the asset was initially reclassified as an investment, adjusted for any depreciation (amortization) expense that would have been recognized had the asset been continuously classified as a capital asset, or (2) its fair value at the date of the subsequent decision not to sell.

Fair Value Option

The Board discussed and tentatively rejected the possibility of proposing a “fair value option” in the GASB literature. That option would have allowed the selective application of fair value measurements to certain assets and liabilities that have not been measured at fair value.

Alternative Investments

Finally, the Board discussed the existence of alternative investments within the governmental environment. When an asset’s fair value measurement is not readily determinable, the Board tentatively decided to propose the guidance established in FASB Accounting Standards Update No. 2009-12—Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset per Share (or Its Equivalent). Accordingly, such assets would be measured using the practical expedient of net asset value per share without adjustment to other measures of fair value.

Minutes Archive

Fair Value Measurement and Application—Tentative Board Decisions to Date


These tentative decisions have been made since the issuance of the Preliminary Views document and in anticipation of a proposed Statement. The Board tentatively agreed to propose the following:
  • The definition of fair value be the “price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
  • The measurement date can be other than the reporting date.
  • Fair value information meets the qualitative characteristics of financial information.
  • Fair value measurements be based on how market participants would evaluate an asset or liability.
  • A government consider the unit of account at which a fair value measurement is made.
  • The principal and most advantageous markets be addressed in terms of a government’s access to those markets.
  • Fair values impound future market expectations to the extent that market participants would consider those expectations.
  • Market participants can either be governmental or nongovernmental entities.
  • In a fair value measurement, price not be adjusted for transaction costs.
  • A market participant take into account transaction costs in determining its principal or most advantageous market.
  • Transactions that are not orderly be addressed.
  • The general notion of hypothetical transactions and whether specific transactions (using examples) are orderly be addressed.
  • Active and inactive markets be addressed.
  • Fair value measurements be based on three approaches: market, cost, and income. The valuation techniques chosen be consistent with the three approaches.
  • For fair value measurements of real estate, application of valuation techniques or methods not be limited to real estate appraisers.
  • Assets and liabilities measured at fair value be organized into a hierarchy based on the levels of inputs used to measure fair value.
  • Quoted prices provided by third parties be acceptable ways to measure fair value, as long as a government has determined that those prices have been developed in accordance with the fair value accounting standards.
  • Input level of values provided by a pricing service not be specified, and such values be classified according to the input hierarchy.
  • A blockage factor not be an input in pricing an asset.
  • The use of a bid price for an asset and an ask price for a liability be permitted but not required.
  • “Highest and best use” continue to be defined as ”a market participant’s ability to generate economic benefits by using the asset according to its highest and best use or by selling it to another market participant who would use the asset according to its highest and best use. The notion would take into account uses that are physically possible, legally permissible, and financially feasible.”
  • Assumptions of market participants, using acceptable market data as of the measurement date, be considered in determining a fair value measurement.
  • Governments be permitted to calculate the fair value of investments that do not have a readily determinable fair value using a practical expedient. That is, the fair value of such investments should be measured according to the net asset value (NAV) per share (or its equivalent, such as member units or ownership interest in partners’ capital).
  • Under the practical expedient, the calculation of NAV per share guidance provide that such measurements be consistent with the measurement principles for investment companies
  • The fair value measurement of a liability assumes that the liability is transferred to another party at the measurement date.
  • The fair values of liabilities be based on a transfer price notion, not on a settlement basis.
  • Transfer restrictions are not a barrier to evaluating a liability on a fair value basis.
  • The definition of investment be “a security or other asset that a government holds primarily for the purpose of income or profit, and its present service capacity is based solely on its ability to generate cash or to be sold to generate cash.” The text “procure services to the citizenry” provided in the originally proposed definition be deleted.
    • Investments be limited to assets.
    • A specific asset cannot meet the definition of both a capital asset and an investment.
  • The scope of the project not include extending fair value measurement to real property that could be reclassified as investment property.
  • Additional guidance related to a government’s usage of an asset is not needed.
    • Volatility that fair value introduces is a faithful representation of the investment resources a government has to finance its operations.
    • No exception to fair value measurement be based on the notion of matched positions.
    • No held-to-maturity classification be provided.
    • A fair value measurement is appropriate for restricted investment assets.
    • A fair value measurement is appropriate for life settlement contracts.
  • The equity method be available to any government except those specifically excluded either by current literature or the proposed Statement.
  • Acquisition value be used to measure specific assets, including capital assets received in a nonexchange transaction; donated capital assets; donated works of art, historical treasures, and similar assets; and capital assets received in a service concession arrangement.
  • Split-interest agreements not be addressed within the Fair Value Measurement and Application project.
  • The Fair Value Measurement and Application project continue as one project.
  • Fair value disclosures be organized by type or class of asset or liability, using the criteria set forth in the Preliminary Views.
  • The following be disclosed for recurring and nonrecurring measurements:
    • The fair value measurement at the end of the reporting period
    • The level of the fair value hierarchy within which the fair value measurements are categorized (Level 1, 2, or 3)
    • A description of the valuation techniques
    • If there has been a change in valuation technique and the reason for making it
  • For nonrecurring measurements, the reason for the measurement be disclosed.
  • Disclosures for investments that calculate net asset value per share or its equivalent setforth in the Preliminary Views
  • No quantitative disclosures regarding the significant unobservable inputs used in the fair value measurement for Level 3 investments
  • No narrative descriptions of the sensitivity of fair value measurements to changes in unobservable inputs used in the measurements of Level 3 investments.
  • As a result of the first time adoption of these standards:
    • The cumulative effect of the change in measuring an asset or liability at fair value be reported as a cumulative effect restatement of beginning net position, fund balance, or fund net positions, as appropriate, and the nature of the restatement and its effect be disclosed.
    • The cumulative effect of assets and liabilities that are no longer required to be measured at fair value be reported, if practical, as a cumulative effect restatement of beginning net position, fund balance or fund net positions, as appropriate, and the nature of the restatement and its effect be disclosed.
    • Acquisition value applied prospectively to measure new transactions.
    • When comparative statements are presented, the provisions be applied retrospectively. However, if restatement of all prior periods is not practical, the cumulative effect adjustment may be reported as a restatement of beginning net position, fund balance, or fund net positions, for the earliest period restated.
  • Provisions be effective for periods beginning after June 15, 2015.
  • Early application be encouraged.
  • In transition, assets that will no longer be measured at fair value be restated at historical cost unless restatement is not practical.
The Board has tentatively agreed to approach the project by dividing it into two parts. Part I addresses the definition of fair value and potential measurement techniques. Part II addresses specific issues involving the application of fair value measurement to specific assets and liabilities.

Part I—Definition of fair value and fair value measurement: The Board tentatively agreed to propose the following for this part of the project:
  • The definition of fair value should be revised as follows: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
  • Fair value measurements can apply to assets and liabilities and should not be limited solely to financial instruments, including investments.
  • In relation to markets, fair value should be a market-based measurement rather than an entity-specific measurement.
  • Fair values should be based on a government’s principal market or, when there is not a principal market, on the government’s most advantageous market. 
  • A fair value measurement for financial and nonfinancial assets should represent an exit price. 
  • An exit price for an asset should be the price that would be received in a sale. An exit price for a liability should be the price paid to transfer a liability. 
  • A fair value standard for governments should not contain a practicability exception that would be applied when considering whether a transaction price is a fair value. 
  • The measurement of the fair value of a government’s liability should take into consideration the credit standing of that government. 
  • A fair value measurement of a nonfinancial asset should represent the value of the asset at its highest and best use as determined by market participants. 
  • A nonfinancial asset’s highest and best use should be measured according to a valuation premise. That premise should consider whether a nonfinancial asset should be evaluated in combination with other assets and liabilities or evaluated on a stand-alone basis.
  • Governments should apply the market and income valuation techniques to measure fair value.
  • Multiple valuation techniques may be used to measure fair value, but the technique selected should be the technique that professional judgment indicates best represents fair value in the circumstances. 
  • Measurement inputs should be ordered into a hierarchy of Levels 1, 2, and 3 inputs.
  • Adjustments to inputs for a blockage factor should be prohibited, regardless of such an input’s categorization within the fair value hierarchy.
  • Level 1 inputs should be utilized when available and not adjusted for premiums or discounts. Level 2 and 3 inputs may incorporate discounts and premiums only to the extent that these characteristics would be considered by market participants when pricing an asset or liability.
  • A fair value standard should include a cost approach.
Part II—Fair value Measurement and Application: This part of the project addresses the application of fair value measurement to specific assets and liabilities that are already measured at fair value and to investment assets that have not been measured at fair value.

The Board tentatively agreed to propose the following:
  • The definition of an investment asset should be amended as follows: “A security or other asset that a government holds primarily for the purpose of income or profit and its present service capacity is based solely on its ability to generate cash, to be sold to generate cash, or to procure services for the citizenry.” 
  • An investment asset should be an asset that possesses the following characteristics:
    • Service capacity. All assets are resources with present service capacity that a government presently controls. Service capacity refers to a government’s mission to provide services. Some financial instruments—that are not investment assets—generate cash but their value to the government is that financial instruments allow the government to provide services. Investment assets indirectly enable a government to provide services. That is, present service capacity is based solely on an investment asset’s ability to generate cash or to be sold to generate cash. (An investment asset’s service capacity may nevertheless be achieved without generating cash as when an investment asset is used to procure services directly in an exchange transaction.)
    • Held primarily for income or profit. A government acquires an asset with first and foremost for future income or profit. Evidence that a government holds an asset for income or profit may be found in the fund (for example, permanent fund) that reports the asset.
  • Securitized mortgages should continue to be classified as investments.
The Board tentatively agreed to propose that as a general proposition, investments should be reported using fair value measurements, subject to the following inclusions and exclusions:
  • Inclusions. The following investment types would be measured at fair value:
    • Investments that are already measured at fair value 
    • Alternative investments that are reported by endowments. 
    • Equity securities (including unit investment trusts and closed-end mutual funds), stock warrants, and stock rights that do not have readily determinable fair values
    • Intangible assets that meet the proposed definition of investments 
    • Land and land rights that are classified as investments, including oil and gas properties that meet the proposed definition of an investment 
    • Co-mingled investment pools that are not government sponsored 
    • Invested securities lending collateral 
    • Real estate that meets the proposed definition of an investment. 
    • Lending assets that meet the proposed definition of an investment
    • Natural resource assets that meet the proposed definition of an investment
  • Exclusions. The following investment types are not included in this tentative decision generally to measure investments at fair value:
    • Investments that do not participate in fair value changes
    • Money market investments and investments that mature in 90 days or less reported by external investment pools. When measured on an amortized cost basis, their reporting values are subject to impairment considerations.
The Board tentatively agreed to propose that the fair values of investments that have floating net asset values and fair values that are not readily determinable be estimated based on the application of FASB Accounting Standards Update No. 2009-12—Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset per Share (or Its Equivalent).

The Board tentatively agreed to propose that the measurement of life insurance policies depend on whether a policy is entered into on the basis of indemnification of loss (traditional life insurance) or on the basis of a life settlement contract.
  • A life settlement contract should be defined as having all of the following characteristics:
    • The investor does not have an insurable interest (an interest in the survival of the insured, which is required for the issuance of an insurance policy).
    • The investor provides consideration to the policy owner of an amount in excess of the current cash surrender value of the life insurance policy.
    • The contract pays the face value of the life insurance policy to an investor when the insured dies.
  • Fair value should be the measurement basis of life settlement contracts that meet the criteria noted above. Cash surrender value should continue to be the measurement basis for government-held life insurance policies.
  • Life settlement contracts that meet the criteria noted above should be evaluated on an individual basis and accounted for as the net of the fair value of expected benefit payments less the fair value of future premiums.
The Board tentatively agreed to propose to eliminate the specific guidance in Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, paragraph 42, and Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, paragraph 424, for mortgage loan investments held by public entity risk pools and insurance entities other than risk pools.

The Board tentatively agreed to propose that acquisition value replace fair value for the following assets:
  • Donated capital assets
  • Donated works of art, historical treasures, and similar assets 
  • Capital assets acquired through a nonexchange transaction 
  • Assets received in a nonmonetary transaction, when the value of the asset received is more clearly evident than the fair value of the asset surrendered 
  • Capital assets received through a service concession arrangement
Disclosures. The Board tentatively agreed to propose the following related to disclosures:
  • The level of detail should consider the following:
    • The level of detail necessary to satisfy the disclosure requirements
    • How much emphasis to place on each of the various requirements
    • How much aggregation or disaggregation to undertake
    • Whether users of financial statements need additional information as described by the Preliminary Views to evaluate the quantitative information disclosed.
  • Valuation techniques and inputs, replacing existing disclosures of methods and significant assumptions
  • The effect of the measurements on investment income for recurring fair value measurements using significant Level 3 unobservable inputs
The Board tentatively agreed to propose that a reporting government disclose additional information, as follows:
  • More disclosure for values measured using Level 3 inputs, compared to the level of detail for values measured using Level 1 and Level 2 inputs
  • Fair value measurements by asset and liability type or class and level of the fair value hierarchy, either in a table or a narrative
  • Quantitative information about significant Level 3 inputs as well as disclosure of the valuation techniques and inputs used in Level 2 and Level 3 fair value measurements
  • Changes in valuation technique that have a significant impact on the result
  • A narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs for fair value measurements categorized within Level 3 when a change in those inputs might result in a significantly higher or lower fair value measurement
  • Additional fair value disclosures for investments in certain entities that calculate net asset value per share (or its equivalent).
To address the level of detail, the Board tentatively agreed to propose the following disclosure provisions:
  • If another part of the GASB literature specifies disclosures according to a type or class for that asset or liability, fair value disclosures may be consistent with that type or class. 
  • The determination of appropriate types and classes of assets and liabilities be on the basis of the nature, characteristics, and specific types of risks of the asset or liability as well as the level of the fair value hierarchy within which the fair value measurement is categorized.
All disclosures required for a recurring fair value measurement also should be required for a nonrecurring fair value measurement, with the exception for Level 3 measurements of a narrative description of the measurement’s sensitivity to changes in unobservable inputs.

Conforming changes. The Board tentatively agreed to propose the following conforming change:
  • When prior-period adjustments are recorded and financial statements only for a single period are presented, the disclosure of the effects of such restatement should be limited to the effects on the beginning balance of net position. The effect of this tentative decision would be to delete the disclosure related to “the change in net assets of the immediately preceding period” currently found in Statement 62, paragraph 62.
Investments in Common Stock. The Board tentatively agreed to propose the following:
  • Investments in certain entities that calculate net asset value per share should not be eligible for the equity method.
  • Investments in common stock held by endowments should not be eligible for the equity method.
  • The cost method of measuring investments in common stock should be eliminated.
Transaction costs. The Board tentatively agreed to propose that transaction costs be period costs and not be taken into account in fair value measurements. This tentative decision would extend to fair value measurements for pension and OPEB plans.

Transition guidance. The board tentatively agreed to propose that the transition provisions should be applied prospectively as of the current reporting period with an option to apply the transition provisions retrospectively.
 

Minutes of Meeting, May 30 – June 1, 2012

The Board continued with its two-part approach to the fair value measurement and application project by reviewing and discussing a compilation of the Board’s tentative decisions to date. That compilation is to be used for reference for the application part of this project.

In addition, the Board tentatively agreed to propose that fair value revisions resulting from a change in a valuation technique or its application should be accounted for as a change in accounting estimate.

Minutes of Meeting, April 18-20, 2012


The Board discussed the FASB and IASB literature that pertains to the cost approach in measuring fair value and some of the current uses for this specific approach. That literature describes the cost approach as the amount that would be required currently to replace the service capacity of an asset, usually through acquisition or construction of a substitute asset. As it pertains to governments, the cost approach is most notably used by pension plans and endowments that use alternative investments. Those investments may report business combinations or property, plant, and equipment that do not have market prices or identifiable cash flows. Given the FASB guidance on fair value as a starting point for the GASB’s project, the Board tentatively agreed that a fair value standard should include a cost technique as substantively presented in FASB Accounting Standards Codification, paragraphs 820-10-55-3D and 55-3E. In order to alleviate confusion over terminology in the GASB literature, references to replacement cost would be deleted.

After discussing the potential for a present value project, the Board tentatively agreed that this issue warrants its own project and that it should not be fully incorporated within the scope of the fair value measurement and application project. Present value topics should only be included to the extent that they are used in a fair value measurement. The Board discussed the present value material presented in FASB Topic 820, Fair Value Measurement, and tentatively decided to include the substance of the “general principles” of paragraphs 820-10-55-5 and 55-6 as part of the standard. The remaining portions of Topic 820 will be considered for inclusion in an Implementation Guide.

The Board also initiated a discussion on fair value disclosures, again using the FASB and IASB literature as a starting point. Rather than focusing exclusively on fair value disclosure issues for discussion at the upcoming May meeting, the Board tentatively agreed to move toward preparation of a draft standard that will reflect the tentative decisions made to date.

Minutes of Meeting, March 6-8, 2012

The Board continued deliberations for the fair value measurement and application project with specific focus on valuation techniques and measurement inputs.

The Board discussed FASB and IASB literature as it pertains to the market and income valuation techniques and tentatively agreed that governments should apply these techniques. The Board also discussed the current replacement cost valuation technique and will consider its implications for governmental entities in more detail at future deliberations. After a discussion of various valuation techniques, the Board tentatively agreed to propose that multiple valuation techniques may be applied. The valuation technique that should be applied is the technique that in the practitioner’s professional judgment best represents fair value. The Board considered FASB and IASB guidance that establishes a hierarchy of inputs for fair value measurements and tentatively agreed to propose a similar methodology, requiring practitioners to apply Levels 1, 2, and 3 inputs.

The Board tentatively agreed to propose that adjustments to the inputs in a fair value measurement for a blockage factor should be prohibited, regardless of an input’s categorization within the fair value hierarchy. Level 1 inputs should be utilized when available and not adjusted for premiums or discounts. Level 2 and 3 inputs may incorporate discounts and premiums to the extent that these characteristics would be considered by market participants when pricing the asset or liability.
The Board considered FASB and IASB guidance, and existing GASB guidance on the use of bid and ask spreads for the purpose of determining fair value. The Board tentatively decided to gather more information from the Fair Value Measurement and Application Task Force before reaching a tentative decision.

The fair value measurement and application project has been divided into two parts. The first part addresses fair value as a general proposition, and the second part addresses application issues. Given this approach, the Board tentatively decided to have staff prepare a draft of the standard that reflects the major tentative decisions to date. The Board then discussed the inclusion of a discussion of present value techniques and concluded that the staff should reframe the question and related materials so that they may be considered at the April meeting.

Minutes of Meeting, January 24-26, 2012

An educational session was held to provide an opportunity for the Board and the project staff to obtain insights as to the issues faced by the FASB and IASB in developing fair value accounting standards in the private sector. A member of the FASB staff presented information to the Board and then answered questions related to the topic. No Board deliberations occurred and no decisions were reached.

Minutes of Teleconference, January 4, 2012

The Board reviewed the findings of two, separate constituent outreach surveys related to fair value information. These surveys were developed by the GASB staff and administered separately to financial statement users and financial statement preparers, with an objective of developing information to assist the Board in its consideration of fair value measurement and application issues. No tentative decisions were made in relation to this constituent outreach.

The Board also continued deliberations on the principles associated with the development of the fair value definition. The Board tentatively agreed that the following principles would apply to a comprehensive fair value definition for both financial and nonfinancial assets and liabilities:

  • Fair value is a market-based measurement.
     
  • A fair value measurement should be based on a government’s principal market or, in the absence of a principal market, on a government’s most advantageous market.
     
  • A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants at the measurement date.
     
  • A fair value measurement represents an exit price.
The Board only addressed the principles described above in relation to the development of a comprehensive definition. The Board did not address or make any tentative decisions regarding the application issues of fair value, as the Board expects to address these issues in a later phase of the project.

Specifically related to nonfinancial assets, the Board reviewed the principles of highest and best use and the related valuation premise as defined by the FASB and IASB. The related valuation premise would address whether a nonfinancial asset should be evaluated in combination with other assets and liabilities or on a stand-alone basis. The Board tentatively agreed that, consistent with the FASB and IASB guidance, the fair value of a nonfinancial asset should represent the asset at its highest and best use as determined by market participants and should be measured according to the related valuation premise. As with the previous discussions and tentative decisions associated with this project, the Board only addressed the principles of highest and best use and the valuation premise and did not address or make any tentative decisions regarding the application of these principles to specific financial statement items.

Minutes of Meeting, December 13-15, 2011

The Board continued deliberations for the fair value measurement and application project with specific focus on the concept of entry and exit prices as applied to financial assets and liabilities.

The Board discussed FASB and IASB literature, which indicates circumstances in which a transaction price may not equal fair value, and plans to discuss the concepts and applicability to governments of these situations in more detail at future deliberations. The Board tentatively agreed that a fair value measurement for financial assets should represent an exit price. The Board considered FASB guidance that allows a practicability exception to the required use of an exit price, and tentatively agreed that, at this time, a fair value standard for governments should not contain a practicability exception.

The Board tentatively agreed that the fair value of a liability should be measured from the perspective of market participants and that the definition of fair value should refer to a liability’s transfer price. Consistent with the notion of measuring the fair value of a liability from the perspective of market participants, the Board also tentatively agreed that a government’s credit standing should be considered in an estimate of the debt of that government.

Minutes of Meeting, November 8-10, 2011

The Board continued deliberations for the fair value measurement and application project with specific focus on markets and orderly transactions.

In relation to markets, the Board tentatively affirmed to propose that fair value is a market-based measurement, rather than an entity-specific measurement. The Board also tentatively agreed to propose that fair values should be based on a government’s principal market or when there is not a principal market, on the government’s most advantageous market. Using the FASB and IASB definition of fair value as a basis for the development of a comprehensive fair value definition, the Board tentatively agreed to propose that a revised definition should no longer refer to willing parties but be revised to market participants.

In relation to orderly transactions, the Board tentatively agreed to propose that a revised definition of fair value should refer to orderly transactions as defined by the FASB and IASB. Further, the Board tentatively concluded to propose that in order to address adverse market circumstances adequately, a fair value standard should include how a fair value measurement should consider the effect of a decrease in volume or level of activity, what factors might suggest a decline in activity, and how a market or quoted price may be adjusted if that price does not represent fair value.

Minutes of Meeting, October 3-5, 2011

The Board began deliberations by reviewing background material on fair value definitions in current GASB literature and the literature of other accounting standards setters.

The Board reaffirmed its tentative decision reached during deliberations of the Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches, that a fair value definition should not be limited to only financial instruments but expanded to potentially include other assets and liabilities.

The Board tentatively agreed that discussions of a definition of fair value should begin with FASB ASC 820, Fair Value Measurements and Disclosures.