While significant attention has been paid to regulatory proposals coming out of Washington, DC and Brussels, FASB and IASB are gaining attention with fair value rules.
The US's accounting standards board has long struggled to bring US Generally Accepted Accounting Principles (GAAP) closer in line with international standards.
The Financial Accounting Standards Board and the International Accounting Standards Board, which are looking to align how managers value assets, are seeking comments until 7 September.
The two boards are working together to: Increase transparency about fair value measurements; detail valuation techniques and seek to define fair value as an exit price, rather than the price a firm paid for the asset.
Changes on the horizon include:
* Requiring individual valuation of assets, instead of valuing assets as a group
* Defining fair value as an exit price rather than a purchase price
* Requiring managers to disclose the effect on the reported value of certain assumptions to value an asset.
The disclosure rules in particular would add considerable work for general partners.
“This could cause additional work and would provide the least value for investors in private equity. The new proposal requires that for a fair value estimate, where you use unobservable inputs, that you provide a disclosure of measurement uncertainty. If there were other ways to come up with fair value, you would have to provide that,” said David Larsen, managing director at Duff & Phelps.
Read the full story on PEM, with David Larsen’s other views on what this could mean for your private equity firm.