FASB Indefinitely Defers Disclosures of Private Company Valuation Data

At its April 10 board meeting, the Financial Standards Advisory Board (FASB) voted to issue an exposure draft that, if approved, would indefinitely defer the adoption of disclosures of numeric values of valuation inputs for company stock in employee benefit plans. FASB's decision was based on concern that the disclosures would have exposed privately held companies' confidential information to the general public on the Department of Labor's Web site. If approved, the deferral will be in effect until the employee benefits community and the DOL resolve the issue. Such indefinite deferrals may last multiple years.

The original disclosure requirements, described in FASB's Accounting Standard Update 2011-4 on fair value, applied to plan years starting after December 15, 2011, and would have required a description of the specific valuation methods used and the specific rates applied. In other words, an ESOP company may have had to report, among other things, fair value, the EBITDA multiple used, and the size of discounts, such as the discount for the lack of marketability. The proposal is to retain the descriptions of the methods and the inputs, but to eliminate the requirement to quantify the inputs.

The disclosures would have been available to the public because employee benefit plans with 100 or more participants are subject to audit under the Employee Retirement Income Security Act (ERISA), and the audited financial statements are available on the DOL's Web site.

The NCEO, the Employee-Owned S Corporations of America (ESCA), and the ESOP Association argued in a joint letter to FASB that making such information broadly available would harm companies by exposing them to hostile takeovers and litigation.

The decision to indefinitely defer these ASU 2011-4 requirements follows an exposure draft process, as part of which a 30-day comment period is expected to begin at the end of April. Service providers and companies with comments should submit their comments.

Thanks to Becky Miller of McGladrey.