Key Takeaways
- • The SEC's Chief Accountant and the Director of the Division of Investment Management issued a Statement on Sept. 28, 2026 on fair value measurement and disclosure for private assets, with particular focus on private credit.
- • The Statement reminds registrants that private credit loans are typically Level 3 under ASC 820 and that management remains responsible for estimating fair value even when timely borrower information is unavailable.
- • Registrants are reminded that Level 3 disclosures should be entity-specific, covering valuation techniques, significant unobservable inputs, and the sensitivity of fair values to input changes, and should avoid boilerplate.
- • The Statement cautions that NAV may be used as a practical expedient only when specified conditions are met, and not where a sale at an amount different from NAV is probable.
- • Auditors and private fund managers are identified as relevant audiences, since auditors evaluate management's judgments and disclosure sufficiency.
Summary
On Sept. 28, 2026, the U.S. Securities and Exchange Commission's Chief Accountant and the Director of the Division of Investment Management issued the Statement on Fair Value Measurement and Disclosure Considerations for Private Assets. According to the summary published by CBIZ, the Statement reminds registrants of the need for rigorous fair value measurement processes and transparent, entity-specific disclosures for private assets, particularly private credit investments. The staff noted the continued growth of private assets and stressed that robust valuation practices and meaningful disclosures are critical for investors to understand reported values and portfolio risks.
The Statement observes that private credit assets are typically illiquid, individually negotiated loans without established secondary markets or readily available quoted prices. Their fair value therefore frequently relies on significant unobservable inputs and is typically categorized as Level 3 under the fair value hierarchy in FASB ASC Topic 820. The staff highlighted several areas requiring significant judgment, including that management remains responsible for estimating fair value even when timely borrower information is unavailable. Fair value should reflect a market participant perspective rather than solely entity-specific expectations, and management may need to consider credit spreads, liquidity conditions, and risk premiums. Calibration to initial transaction prices remains important, with valuation models reassessed as market conditions evolve.
On disclosure, the staff reminded registrants that ASC 820 requires Level 3 disclosures covering the valuation techniques used, significant unobservable inputs such as discount rates and credit spreads, and how changes in those inputs could materially affect reported fair values. The Statement cautions against boilerplate or overly aggregated disclosures. The staff also identified as potentially material modifications, restructurings, extensions, and non-accrual investments, along with the criteria used to classify non-accrual assets and the nature and significance of payment-in-kind (PIK) interest and its effect on reported income and credit risk.
The Statement also addresses net asset value (NAV) as a practical expedient under ASC 820, which may be used only when specified conditions are met and may not be appropriate when a sale at an amount different from NAV is probable. The staff encourages management to treat this assessment as an iterative, evidence-based process, documenting the basis for its conclusions.
Although the Statement is directed at registrants, including registered closed-end funds, interval funds, tender offer funds, business development companies, and privately offered funds registered under the Securities Exchange Act of 1934, it expressly notes that the issues are relevant for auditors evaluating management's judgments and disclosure sufficiency. Private fund managers and auditors involved in valuing illiquid investments may therefore find the considerations relevant. The Statement closes by emphasizing that robust policies and procedures, paired with material disclosure, help investors understand an entity's fair value process and the risks associated with private assets.
The Statement observes that private credit assets are typically illiquid, individually negotiated loans without established secondary markets or readily available quoted prices. Their fair value therefore frequently relies on significant unobservable inputs and is typically categorized as Level 3 under the fair value hierarchy in FASB ASC Topic 820. The staff highlighted several areas requiring significant judgment, including that management remains responsible for estimating fair value even when timely borrower information is unavailable. Fair value should reflect a market participant perspective rather than solely entity-specific expectations, and management may need to consider credit spreads, liquidity conditions, and risk premiums. Calibration to initial transaction prices remains important, with valuation models reassessed as market conditions evolve.
On disclosure, the staff reminded registrants that ASC 820 requires Level 3 disclosures covering the valuation techniques used, significant unobservable inputs such as discount rates and credit spreads, and how changes in those inputs could materially affect reported fair values. The Statement cautions against boilerplate or overly aggregated disclosures. The staff also identified as potentially material modifications, restructurings, extensions, and non-accrual investments, along with the criteria used to classify non-accrual assets and the nature and significance of payment-in-kind (PIK) interest and its effect on reported income and credit risk.
The Statement also addresses net asset value (NAV) as a practical expedient under ASC 820, which may be used only when specified conditions are met and may not be appropriate when a sale at an amount different from NAV is probable. The staff encourages management to treat this assessment as an iterative, evidence-based process, documenting the basis for its conclusions.
Although the Statement is directed at registrants, including registered closed-end funds, interval funds, tender offer funds, business development companies, and privately offered funds registered under the Securities Exchange Act of 1934, it expressly notes that the issues are relevant for auditors evaluating management's judgments and disclosure sufficiency. Private fund managers and auditors involved in valuing illiquid investments may therefore find the considerations relevant. The Statement closes by emphasizing that robust policies and procedures, paired with material disclosure, help investors understand an entity's fair value process and the risks associated with private assets.
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