Fair value measurements and disclosures Deloitte US

While a full roll-forward is no longer required, disclosure should include purchases and issues (presented separately), the amounts of any transfers into or out of Level 3 (presented separately), and the reasons for the transfers. The disclosures in this paragraph are not required for items measured on a nonrecurring basis. Fair value changes from other invested assets and funds held by ceding companies are reported in “Net investment income – non-participating business”. Fair value changes from the GMDB reserves are shown in “Life and health benefits”. Fair value changes from accrued expenses and other liabilities are reported in “Net realised investment gains/losses – non-participating business“.

EisnerAmper LLP and Eisner Advisory Group LLC (and its subsidiary entities) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. EisnerAmper LLP is a licensed independent CPA firm that provides attest services to its clients, and Eisner Advisory Group LLC and its subsidiary entities provide tax and business consulting services to their clients. Eisner Advisory Group LLC and its subsidiary entities are not licensed CPA firms.

Issuer spreads are determined from actual quotes and traded prices and incorporate considerations of credit/default, sector composition, and liquidity and call features. Where market data is not available, valuations are developed based on the modelling techniques that utilise observable inputs and option-adjusted spreads and incorporate considerations of the security’s seniority, maturity and the issuer’s corporate structure. Policy loans, other loans and certain mortgage loans are classified as level 3 measurements, as they do not have an active exit market. Some of these positions need to be assessed in conjunction with the corresponding insurance business, whilst the fair value of some other positions does not differ materially from the carrying amount. Considering these circumstances for these positions, the Group presents the carrying amount as an approximation for the fair value. For certain commercial mortgage loans and infrastructure loans, which are included in mortgage loans and other loans respectively, the fair value can be estimated using discounted cash flow models which are based on discount curves and spread inputs that require management’s judgement.

1. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
2. CMBS terms may also incorporate lock-out periods that restrict borrowers from prepaying the loans or provide disincentives to prepay and therefore reduce prepayment risk of these securities, compared to RMBS.
3. Where market data is not available, valuations are developed based on the modelling techniques that utilise observable inputs and option-adjusted spreads and incorporate considerations of the security’s seniority, maturity and the issuer’s corporate structure.

They also help to explain any irregularities or perceived inconsistencies in year to year account methodologies. It functions as a supplement, providing clarity to those who require it without having the information placed in the body of the statement. Nevertheless, the information included in the footnotes is often important, and it may reveal underlying issues with a company’s financial health.

For operational efficiencies, the Group elected the fair value option for funds held by the cedent under three of its reinsurance agreements. The assets are carried at fair value and changes in fair value are reported as a component of earnings. The significant unobservable input used in the fair value measurement of the Group’s OTC equity option referencing correlated equity indices is correlation.

Asset Management Update: FASB Modifies Fair Value Disclosure Requirements

The Group uses third-party pricing vendor data to value agency securitised products, which mainly include collateralised mortgage obligations (CMO) and mortgage-backed government agency securities. The valuations generally utilise observable inputs consistent with those noted above for RMBS and CMBS. Financial Instruments (Topic 825) – As noted earlier, Topic 825 is scaled down for private entities.

With nonrecurring, if the item being valued is goodwill or an indefinite-lived intangible asset after initial recognition, this information is not required. This Roadmap is intended to help entities navigate the accounting guidance related to fair value measurements and disclosures, reduce complexity, and arrive at appropriate accounting conclusions. This is done mainly for the sake of clarity because these notes can be quite long, and if they were included in the main text they would cloud the data reported in the financial statement. Using footnotes allows the general flow of a document to remain appropriate by providing a way for the reader to access additional information if they feel it is necessary. It allows an easily accessible place for complex definitions or calculations to be explained should a reader desire additional information. Footnotes to the financial statements refer to additional information that helps explain how a company arrived at its financial statement figures.

Valuation of direct private equity investments requires significant management judgement due to the absence of quoted market prices and the lack of liquidity. Subsequent valuations also reflect business or asset appraisals, as well as market transaction data for private and public benchmark companies and the actual companies being valued, such as financing rounds and mergers and acquisitions activity. The Group’s holdings in private equity and hedge funds are generally valued utilising net asset values (NAV), subject to adjustments, as deemed necessary, for restrictions on redemption (lock-up periods and amount limitations on redemptions). These investments are included under investments measured at net asset value as a practical expedient. Therefore, before applying the fair value measurement framework in ASC 820, entities must determine whether fair value measurement under ASC 820 is required or permitted by other US GAAP.

You may wonder how different the company’s annual profits would have been if they had used a different accounting method. But, as an outside investor, you would have to compute these amounts yourself (assuming you had all the necessary information). Businesses disclose which accounting methods they use, but they do not disclose how different annual profits would have been if an alternative method had been used. Often, the footnotes will be used to explain how a particular value was assessed on a specific line item. This can include issues such as depreciation or any incident where an estimate of future financial outcomes had to be determined.

One problem that most investors face when reading footnotes is that they often deal with complex issues (such as lawsuits) and rather technical accounting matters. For an example of the latter, https://simple-accounting.org/ following is a footnote from the 2003 annual 10-K report of Caterpillar, Inc. filed with the SEC. This post is published to spread the love of GAAP and provided for informational purposes only.

Disclosures in Financial Reports: Footnotes

Finally, for levels 1, 2, or 3, if the item is a nonfinancial asset and it is not currently being used at its highest and best use, describe why the item is being used differently. If Level 2 or 3, add a description of the valuation techniques and inputs used and disclose any changes in the valuation approach or techniques that have been made and why. © 2024 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. Footnotes may also include information regarding future activities that are anticipated to have a notable impact on the business or its activities. For example, descriptions of upcoming new product releases may be included, as well as issues about a potential product recall.

Entry vs. Exit Pricing

Importantly, a company will state the accounting methodology used, if it has changed in any meaningful way from past practice, and whether any items should be interpreted in any way other than what is conventional. For example, footnotes will explain how a company calculated its earnings per share (EPS), how it counted diluted shares, and how it counted shares outstanding. The fair value footnote disclosure examples netting of derivative receivables and derivative payables is permitted when a legally enforceable master netting agreement exists between two counterparties. A master netting agreement provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default or on the termination of any one contract.

This was a difficult year to develop a 1-day update course covering the latest developments in both U.S. Revenue from Contracts from Customers (ASC 606 / IFRS 15), Leases (ASC 842 / IFRS 16), and Financial Instruments (ASC 326 / IFRS 9), just to name a few of the headliners. Looking for things to cut, a new standard dealing with disclosures was an easy target. However, what I failed to appreciate was that clients were struggling to comply with existing requirements related to disclosure of fair value measurements, especially private investment funds. The Group elected the fair value option for certain investments classified as equity method investees within other invested assets in the balance sheet.

3 Fair value disclosure requirements

These materials were downloaded from PwC’s Viewpoint (viewpoint.pwc.com) under license.