Private equity sponsors struggle to make sense of the new ...

til fiscal years beginning after Dec. 15.FASB delayed the effective date for this disclosure to give entitiesthat require significant changes to their information systems adequatetime to comply with the new standard. As a practical matter,investment funds should begin to evaluate the impact of this newdisclosure requirement.The update also requiresa reporting entity to providefair-value measurement disclosuresfor each “class” of assetsand liabilities. Currently,reporting entities are only requiredto disclose information relating to “major categories.” Whilethe update does not specifically define the criteria of a class, it doesprovide guidance as to what the components of the class should entailbased on the nature and risks of the assets and liabilities.Although the new guidance calls for updated and enhanced disclosures,the good news for investment funds is that they are alreadydetermining various levels of disaggregation when preparing theircondensed schedule of investments (SOI) in the financial statements.Preparers of investment fund financial statements can save time andeffort by starting this process early and preparing the footnote disclosureshowing assets and liabilities by class in conjunction with the SOI.The update also clarifies the disclosure requirements relating toinputs and valuation techniques used to measure fair value. For fairvaluemeasurements using significant other observable inputs (Level2) and significant unobservable inputs (Level 3), a fund will nowbe required to disclose a more detailed description of the valuationtechniques used in determining fair value for each class of assets andliabilities. Funds will also be“A fund will now be required todisclose a more detailed descriptionof the valuation techniques.”required to disclose changesto valuation techniques andthe reason for such changes.The overall objective ofthe update is to provide increasedtransparency for the users of financial statements that requireassets and liabilities be measured at fair value. Fair value has been, andwill always be, a sensitive area to investors and other users of financialstatements.For many investment firms, the effort associated with compliancewith the update will be offset by increased industry asset flows associatedwith restored investor confidence, particularly among institutionalinvestors who typically rely on a greater level of disclosure.John Barbagallo and Tom Del Core are senior managers at Rothstein Kass,a national CPA and advisory services firm.