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Disclosure Framework for the Valuation of Financial Instruments 

Global accounting standards, as well as requirements promulgated by other standard-setting bodies such as the U.S. Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB), International Valuation Standards Council (IVSC), International Auditing and Assurance Standards Board (IAASB) and Basle, increasingly call for measurements and disclosures that comply with a defined measurement objective. For example, fair value and “fair value-based” requirements promulgated by the FASB and IASB have particularly impacted financial instruments, share-based compensation and portfolio investments.

Separately, there has been a long-term trend toward more complexity in the terms, conditions, and structure of financial instruments themselves. This combination, increasing requirements with respect to a variety of measurement objectives, plus increasing complexity in the financial instruments themselves – leads to increasing measurement risks for reporting entities and auditors and increasing uncertainty for third-party investors who rely on the resulting financial information.

As part of its initiative to launch the Certified in the Valuation of Financial InstrumentsTM (CVFITM) credential in the fall of 2017, the AICPA has developed a proposed Disclosure Framework for the Valuation of Financial Instruments. The purpose of this document is to provide a framework for the valuation professional, regarding performance requirements when engaged (in the case of independent third-party professionals) or assigned (in the case of internal professionals employed by a reporting entity) to provide fair value and other measurements of financial instruments and components thereof. By design, the Framework and its related Applications do not provide instructions on how to arrive at a valuation conclusion, but instead, the documents provide valuation professionals with guidance on the level of documentation and substantiation that is required when performing, reviewing or working with securities or financial instrument valuations.

CVFI credential holders will be required to comply with the Financial Instruments Disclosure Framework, strengthening confidence in the consistency and transparency of their work to improve integrity and transparency in the interest of the financial markets and, ultimately, the public. Key components of this new credentialing program will include ongoing credential maintenance requirements as well as participation in a quality monitoring program delivered by the AICPA with its 40-year history of monitoring quality in the accounting profession.

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Financial Instruments Disclosure Framework Exposure Draft

The AICPA is seeking comments on the scopes of the Disclosure Framework for the Valuation of Financial Instruments and the related Application of the Disclosure Framework for the Valuation of Financial Instruments and whether their contents provide the appropriate set of parameters to help improve the documentation and auditability of securities and financial instrument valuations. 

Comments on the Exposure Draft for the Disclosure Framework for the Valuation of Financial Instruments and its related Applications will be accepted until September 26, 2017. 

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