ASC 820 vs IFRS 13: Differences That Matter to a European Fund

European funds with US limited partners meet both standards, usually in the same reporting cycle. The good news is that they agree on the thing that matters most: what fair value means.

The differences that remain are worth knowing precisely, because they are narrow and specific rather than sweeping.

Start with what is the same

Both define fair value as the price to sell an asset in an orderly transaction between market participants at the measurement date. Both use a three-level hierarchy of inputs. Both set the level by the lowest input that is significant to the measurement.

Both also expect the valuation technique to suit the asset, to be applied consistently, and to be documented well enough that a reader can follow it.

For the great majority of private holdings, a valuation that satisfies one satisfies the other on substance.

Disclosure is where the visible difference sits

The required detail around Level 3 measurements differs in granularity, and US practice tends to expect fuller quantitative disclosure of unobservable inputs and of the movements between opening and closing balances.

In practice this rarely changes the number. It changes how much of the working has to be presentable rather than merely available, which is an argument for building the file that way from the start.

Unit of account and portfolio measurement

The question of what is being measured, a single share or the whole holding, has been a source of genuine divergence in practice, and it affects whether a premium or discount for the size of the stake is appropriate.

Related to it is the treatment of a group of assets managed together. Where a portfolio exception applies, the measurement can be made on the net position rather than instrument by instrument.

These are the areas where a fund reporting under both should take advice rather than assume equivalence.

How to run it without doing everything twice

Pick a primary reporting basis and build the valuation file to its requirements, at the more demanding level of disclosure. Then reconcile to the second basis rather than re-deriving under it.

Two independently maintained valuations for the same asset will drift, and the drift is the finding. One valuation with a documented reconciliation will not.

Where a real divergence exists, name it in the reconciliation with the reason, rather than leaving a reader to discover the difference.