Disclosure Requirements

Question 1

What are the special disclosures required for fair value measurements (on a recurring basis) that are based on unobservable inputs (i.e., Level 3 inputs)?

Answer 1

1. Reconciliation of beginning and ending balances;
2. Description of the valuation process used;
3. Quantitative information about the unobservable inputs used;
4. Narrative description of the sensitivity of fair value to changes in unobservable inputs;
5. Unrealized gains/losses for the period and where reported.

Question 2

Distinguish between assets and liabilities measured at fair value on a recurring basis and nonrecurring basis.

Answer 2

Assets and liabilities measured at fair value on recurring basis are adjusted to fair value period after a period. Assets and liabilities measured at fair value on a nonrecurring basis are adjusted to fair value only at the time of a particular event (e.g., significant modification of debt).

Question 3

What significant fair value disclosures are required only in annual statements?

Answer 3

The methods and significant assumptions used to estimate fair value.

Question 4

What types of comparisons are fair value option disclosures intended to facilitate?

Answer 4

1. Between entities that choose different measurement methods for similar assets and liabilities;
2. Between assets and liabilities in the financial statements of an entity that selects different measurement for similar assets and liabilities.