Oh well, who needs fair value disclosures anyway?

Hockey93 writes:
This article is about the recent project of decreasing the amount of disclosures related to level 3 fair value measurements required in private companies and not-for-profits’ financial statements. Currently, they must provide the same disclosures as public companies. The FASB has decided to undertake this project because of the result of a recent survey of private and not-for-profit financial statement users. The users stated that many of the disclosures provide them with no additional benefits.

I agree with this project because many of the disclosures that are required only benefit the users of public company financial statements. As long as the FASB is on the same page as the users of private and not-for-profit financial statements, this project could increase the relevance of information presented, decrease the cost of preparing necessary disclosures, and greatly benefit the financial information users. Many of the required fair value disclosures are in place for the benefit of public company information users. Some of these disclosures are completely irrelevant for private and not-for-profit company information users and cause the companies to incur unnecessary costs to prepare them. By decreasing the amount of disclosures, companies can now focus on making sure the required disclosures are adequate and fully disclose all information. This is especially important since level 3 fair value measurements are the values which use the greatest amount of management’s judgement. Users of financial information need to know what judgements management is making.

Since financial statements are mainly for the external users, I agree with this project because it will ultimately provide greater benefits to the users of financial information. The key for me in agreeing with this project is that the FASB surveyed users of financial statements, not the companies, and asked them what disclosures are relevant and irrelevant. This will ensure that the users will still be provided with all the information they need to make decisions.

What do you think about decreasing the disclosure requirements? Here’s the article http://www.accountingtoday.com/news/FASB-Tackle-Fair-Value-Disclosures-Private-Companies-Nonprofits-60914-1.html

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About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

5 comments

  1. The SEC requirements are required because a few companies ruined it(Enron, WorldCom). But what did they ruin? A bunch of people selling stocks to eachother to try to make a bunch of short term money gains in a row. Now American companies have to pay millions of dollars a year to outside companies just so their stock can be traded.

  2. That's what often happens with regulation. Something goes wrong and a huge and expensive regulatory structure is constructed to prevent it from happening again. The problem is that that the new regulatory structure is far more costly than the original fraud. And we all have to pay for it.

  3. You are right. I don't know that much about it. I have an interesting idea about the ability to print money and it's use to fund federal and state deficits. Somebody would inflate, definitely, so we would need regulation there. (previous economics theories say that inflation is definite result of printing money).I guess that's me: the City/State regulator.

  4. Decreasing the disclosure requirements would be a great idea, considering private companies and not for profit constituents have answered that the information is not useful to them in their decision making. Besides this, it is extremely costly for private companies and not for profits to disclose such information. It's great that FASB is listening to the needs of private companies and not for profits. As for the above comments, I agree entirely. Unfortunately we all have to pay for the mistakes of few. While regulation is necessary, it is usually extremely costly.

  5. I guess printing money at will would make people lazy. It's sad. Oh well.

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