2.7 Fair Value
2.7.1 Valuation Techniques and Inputs
Examples of SEC Comments
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We note your disclosure of certain items that are valued on a recurring and non-recurring basis that have utilized level 3 inputs. We note you have provided quantitative information about the significant unobservable inputs for [financial instruments], however, it does not appear that you have provided such quantitative information for other items (e.g., [impairment of intangible assets], contingent consideration) that you have identified as utilizing level 3 inputs. Please tell us how you determined it was unnecessary to disclose quantitative information about the significant unobservable inputs for such items in accordance with ASC 820-10-50-2(bbb).
- It appears that you determined the fair value of your impaired real estate and intangible assets using various methods, some of which are internal valuation methods. For the internal valuation methods, please tell us how you have complied with ASC 820-10-50-2(bbb), or tell us how you determined it was not necessary to provide quantitative information about the significant unobservable inputs.
- In future filings please disclose the specific valuation techniques and inputs used in measuring the fair values of the investment securities classified as Level 2 in your disclosure. Refer to ASC 820-10-50-2bbb.
The SEC staff has requested more specific information from registrants related
to valuation techniques and inputs used in fair value measurements. Registrants
should consider how the fair value disclosure requirements of ASC 820-10-50
apply to their recurring and nonrecurring fair value measurements. More
specifically, registrants should provide information about (1) the methods and
techniques used to determine fair value and (2) the inputs to those models.
Under ASC 820-10-50-2(bbb), entities are required to disclose quantitative
information about the significant unobservable inputs used in Level 3 fair value
measurements. This guidance explicitly requires public entities to disclose (1)
the range and weighted average used to develop significant unobservable inputs
and (2) how the weighted average was calculated for fair value measurements
categorized within Level 3 of the fair value hierarchy. However, public entities
may disclose other quantitative information in lieu of the weighted average if
they determine that such information embodies a more reasonable and rational
method of reflecting the distribution of significant unobservable inputs used to
develop Level 3 fair value measurements. In these cases, public entities are not
required to disclose their reasons for omitting the weighted average.
2.7.2 Use of Third-Party Pricing Services
Examples of SEC Comments
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We note that [X]% of the total asset value reported for your pension plans in [the footnote] is based on net asset values to approximate fair values at [your fiscal year-end].Please expand your disclosure to explain how you select, apply and test the underlying valuation methodologies, and to describe any efforts that you undertake to oversee and evaluate pricing services that are based on the net asset values of the investments.
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We note your disclosure indicates that the fair value of your agency [mortgage-backed securities (MBS)], nonagency MBS and derivative instruments are based upon pricing service quotations or broker quotations. In future filings, please revise your disclosure to describe the valuation techniques used to determine the fair value of each of these instruments categorized within Level 2. Refer to ASC 820-10-50-2(bbb).
The SEC staff continues to ask registrants to describe the procedures they
perform to validate fair value measurements obtained from third-party pricing
services. The staff has also asked registrants to clarify when and how often
they use adjusted rather than unadjusted quoted market prices and to disclose
why prices obtained from pricing services and securities dealers were adjusted.
If multiple quotes were obtained, the SEC staff may request information about
how the registrant determined the ultimate value used in the financial
statements.
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