This monthly blog today addresses the annual Securities and Exchange Commission’s (SEC) findings during examinations of publicly traded corporations. Questions they pose to companies are labeled “Comment Letters” and once again for the years 2018 and 2017 fair value hit the top 10 issues and in particular, it was ranked #3. The SEC continues to ask registrants about (1) valuation techniques and inputs used in fair value
measurements (including disclosure requirements for recurring and nonrecurring fair value
measurements) and (2) the use of third-party pricing services. Furthermore, the staﬀ frequently
asked about fair value estimates with regards to revenue recognition, goodwill impairment, and share-based payments.
Specifically, they requested information from registrants related to valuation techniques and inputs used in fair value measurements. Companies needed to consider how fair value disclosures provide information about (1) the methods and techniques used to determine fair value and (2) the inputs to those models. Accordingly, the SEC also found lacking quantitative information about the significant unobservable inputs used in Level 3 fair value measurements. Lastly, the SEC continues to ask registrants to describe the procedures performed to validate fair value measurements obtained from third-party pricing services. The SEC requested 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.
Now you see why training in fair value measurement is so critical. Almost every year, these reports state similar results. More to follow next month. Until next time……..