Fair Value Footnote Disclosure Examples: ASC 820

Fair value footnote disclosure examples under ASC 820 share a common backbone: a hierarchy table that ties to the balance sheet, a description of valuation techniques and inputs for each class of asset or liability, and progressively deeper detail as measurements move from Level 1 down to Level 3. What you actually put on the page depends on whether the measurement is recurring, whether it lands in Level 3, whether it uses net asset value as a practical expedient, and whether the reporting entity is public. The sections below walk through each piece with the numbers and language a preparer would use.

The hierarchy itself sets the disclosure depth. Level 1 covers quoted prices in active markets for identical assets, like exchange-traded equities or on-the-run Treasuries. Level 2 covers observable inputs short of that — quoted prices for similar instruments, quoted prices for identical instruments in inactive markets, and market data like interest rates, yield curves, implied volatilities, and credit spreads.¹ Level 3 covers unobservable inputs, meaning the entity’s own assumptions about what market participants would use. The higher the level number, the more your footnote has to say.

The Primary Hierarchy Table

Every recurring fair value footnote opens with a table showing fair value by class of asset or liability, broken across Level 1, Level 2, Level 3, and a total column. The table must tie to the line items on the balance sheet, and classes should be granular enough that a reader can see where the measurement risk actually sits.

Take an entity with three recurring classes: equity securities, interest rate swaps, and private equity fund interests. The equity securities might show $50,000 in Level 1 and nothing elsewhere, indicating all positions are exchange-traded. The interest rate swaps might show $30,000 entirely in Level 2, reflecting valuations built from observable swap curves and counterparty credit adjustments. The private equity interests might show $150,000 entirely in Level 3, signaling immediately that these values rest on management assumptions. Amounts are typically presented in thousands.

Valuation Techniques and Inputs

Below the table, the footnote describes the valuation techniques used for the Level 2 and Level 3 classes and identifies the key inputs. ASC 820 recognizes three broad approaches — the market approach (prices or multiples from comparable transactions), the income approach (expected cash flows converted to a present value), and the cost approach (current replacement cost of an asset’s service capacity). Say which approach applies to each class.

For the interest rate swaps in the example, the footnote would identify the income approach and note that the key inputs include benchmark interest rate curves and counterparty credit risk adjustments, both observable in the market. That is enough for a Level 2 item. For the private equity holdings, the narrative has to go further, opening into the quantitative and sensitivity disclosures described below.

For any Level 2 item priced through matrix pricing (a common example is a corporate bond), the description should say so and identify the observable benchmark yields and credit spreads driving the model. A simple “the bond was priced using observable market data” is not enough.

Transfers Into and Out of Level 3

The footnote must disclose transfers into Level 3 separately from transfers out and explain the reason for each. A decline in market activity for a security previously priced with observable data may push it from Level 2 to Level 3. A transfer out often reflects a previously private company completing an initial public offering, which produces an observable market price. Transfers between Level 1 and Level 2 no longer require disclosure after ASU 2018-13 removed that requirement.²

The Level 3 Roll-Forward

Public entities have to reconcile the opening and closing balances for each class of recurring Level 3 measurement. The reconciliation cannot net purchases against sales or issuances against settlements — each category is its own line — and the closing balance has to tie back to the Level 3 column in the primary table.

For the private equity holdings class above, the roll-forward in summarized form starts at $140,000. Total gains recognized in net income add $5,000, with $3,000 of unrealized gains on positions still held at period end shown separately. Purchases of $25,000 appear on their own line, as do sales of $10,000 and settlements of $8,000. Transfers into Level 3 of $1,000 and transfers out of $3,000 appear with a note explaining that the transfer out resulted from a previously private company completing an initial public offering. The schedule closes at $150,000, tying to the Level 3 column in the primary table.

The roll-forward has to break gains and losses between amounts recognized in earnings and amounts recognized in other comprehensive income, and it must identify the specific income statement line where the earnings portion appears. Public entities must also separately disclose the change in unrealized gains or losses included in OCI for Level 3 instruments still held at the reporting date — a requirement added by ASU 2018-13.²

Unobservable Inputs and Sensitivity Narrative

For recurring Level 3 items, naming the valuation technique is only the start. The footnote must disclose the actual numbers plugged into the model, including the range of each significant unobservable input. Public entities must also disclose the weighted average, or an alternative measure like a median where a weighted average does not meaningfully reflect the distribution.²

Staying with the private equity example, the footnote would state that fair value was determined using the income approach, specifically a discounted cash flow model. The significant unobservable inputs include a discount rate ranging from 10.0% to 14.0% with a weighted average of 11.5%, and a terminal growth rate ranging from 3.0% to 5.0% with a weighted average of 3.8%.

The footnote also has to describe the directional relationship between each input and the resulting fair value. If a lower discount rate would produce a higher valuation, say so. If a higher assumed royalty rate would increase the value of an intangible asset, say that too. These directional statements tell users which assumptions are doing the most work.

The sensitivity narrative then explains how the fair value could change if the unobservable inputs were reasonably different. Holding all other variables constant, a 100 basis point decrease in the weighted average discount rate would increase the portfolio’s fair value by approximately $8,000, while a 100 basis point decrease in the terminal growth rate would reduce fair value by approximately $4,500. When multiple inputs could move together, the narrative should describe the correlation and the combined effect. A decrease in projected revenue growth paired with an increase in the discount rate, for example, can produce a compounding effect on the valuation that neither change alone would produce. Addressing those dependencies is what separates a useful sensitivity disclosure from a perfunctory one.

Non-Recurring Measurements

Some fair value measurements only occur when a specific event triggers a remeasurement. Impairment charges on long-lived assets, goodwill write-downs, and the initial recognition of assets acquired in a business combination are the most common examples. Because these are point-in-time calculations rather than ongoing measurements, the disclosure requirements are lighter.

The footnote must state the fair value recorded, identify the hierarchy level, and explain what triggered the measurement. For a goodwill impairment, that means describing the circumstances that led to the impairment test and the specific income approach or market approach used to estimate fair value. When a non-recurring measurement relies on Level 3 inputs, the entity must describe the valuation technique and key unobservable inputs the same way it would for a recurring Level 3 item. If a long-lived asset was written down based on a discounted cash flow model, the discount rate range and projected cash flow assumptions should appear in the footnote. The full Level 3 roll-forward is not required for non-recurring items because there is no balance to track from period to period.

Investments Measured at Net Asset Value

Certain alternative investments — hedge funds, private equity funds, and real asset funds — can be measured at fair value using the investee’s reported net asset value per share as a practical expedient. When an entity uses this shortcut, the investment sits outside the three-level hierarchy entirely and is not classified as Level 1, Level 2, or Level 3. The disclosures instead focus on liquidity risk.

For each class of investment measured at NAV, the footnote must disclose:

The total fair value of the investment class.
A description of the fund’s significant investment strategies.
Redemption terms, including the frequency with which the entity can redeem, the notice period required, and any lockups or gates that could prevent redemption.
The dollar amount of any unfunded commitments.
For investments that can never be redeemed but distribute cash as underlying assets are sold, the expected liquidation period if the investee has communicated or publicly announced it.
Any other significant restriction on the entity’s ability to sell or transfer the interest.

These disclosures exist because the hierarchy-level framework does not apply, so users need a different way to gauge how quickly the entity could convert these holdings to cash and whether the reported NAV is likely to hold up in an actual transaction.

Nonpublic Entity Relief

ASU 2018-13 carved out meaningful exemptions for nonpublic entities. The most labor-intensive pieces of the Level 3 footnote drop away, though the tabular presentation, hierarchy classification, and technique-and-input narrative all still apply. Nonpublic entities are not required to provide:

The full Level 3 roll-forward. Instead, disclose transfers into and out of Level 3 and purchases and issuances of Level 3 assets and liabilities.²
The separate disclosure of unrealized gains and losses included in earnings or OCI for Level 3 items still held at period end.
The range and weighted average of unobservable inputs feeding Level 3 models.
The narrative describing how fair value could change with reasonably different unobservable inputs.²

Third-Party Pricing Services

Many entities rely on external pricing services or broker quotes for Level 2 and some Level 3 measurements. Using a third party does not shift responsibility. Management remains accountable for every fair value number and for determining the correct hierarchy classification.

ASC 820 implementation guidance suggests disclosing how broker quotes, pricing service valuations, and reported NAVs were considered in arriving at fair value.³ Management’s internal assessment should evaluate whether the third party’s model is appropriate, whether the data used is accurate and complete, whether the inputs are observable or unobservable for hierarchy classification, and how any caveats the pricing service attaches to its estimates were factored in. A footnote that reflects that assessment reads very differently from one that treats a vendor number as a black box, and auditors read the difference.

1
Deloitte Accounting Research Tool. 8.3 Level 2 Inputs
2
FASB. Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820)
3
Deloitte Accounting Research Tool. 10.8 Using Quoted Prices by Third Parties