The Financial Accounting Standards Board has issued a set of proposed changes to fair value measurement rules that would require companies to provide more information about illiquid assets.

The disclosures in FASB’s exposure draft would provide more information about fair value measurements that use “significant unobservable inputs,” known as Level 3 inputs, because they have a greater degree of uncertainty and subjectivity. The Level 3 assets are typically illiquid assets whose value may be based on mathematical models. FASB has proposed that companies provide additional disclosures about any significant effects on the fair value of the assets if the reporting entity were to use “reasonably possible” alternative inputs or market scenarios.

“A number of constituents have recommended that the board improve disclosures about fair value measurements,” said FASB Chairman Robert Herz.

The proposed rules also would require companies to segregate information for different classes of assets and liabilities based on their nature and risk characteristics and their placement in the fair value hierarchy, whether it be Level 1, 2 or 3. FASB noted that users of financial statements, such as investors, need more robust disclosures about the valuation techniques and inputs used for both Level 2 and Level 3 measurements because many consider these measurements to be less reliable than Level 1 measurements. The value of Level 1 assets is based on actual market prices, while Level 2 assets can be valued based on the prices for comparable assets in liquid markets.

The exposure draft relates to topic 820 in the recently released FASB Accounting Standards Codification and was formerly known as FAS 157. The deadline for comments is Oct. 12, 2009. For more information, visit

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