Frequently Asked Questions on Fair Value Measurements

(1) What elements should be included in the fund's valuation policy?

Although this is not an all-inclusive list, here are some suggestions:

Start with the fund's objective in having policies and procedures to value the investments.
The valuation policy should be in accordance with the fund's offering documents.
FASB statement 157 is effective for financial statements with fiscal years beginning after November 15, 2008. If the fund's reporting period is after the effective date, consider whether the fund has adopted SFAS 157, Fair Value Measurements.
List the names, roles and responsibilities of the officers, committees and service providers involved in the valuation process.
List the key determinants for classification of the investments in level I, II or III.
Explain how often the fund performs the valuation and classification process.
List the valuation sources for each type of asset.
Discuss the principal markets for the investments.
Discuss the methodology used for pricing each type of investment. For complex instruments:
1. Explain the method used to derive average price from broker quotes.
2. If a pricing model is used, explain the pricing model, the sources used, steps in the input process and parties responsible for the input.
3. If pricing specialists are used, list their names, roles, responsibilities and qualifications.
Explain the control processes implemented (e.g. back testing procedures).
Determine thinly traded securities and the process for identifying them.
Disclose procedures for monitoring the trading volume and an orderly transaction.
Explain the circumstances in which the investment manager can override the stated policies and procedures.
If the fund is using materiality thresholds, define materiality.

Frequently Asked Questions on Fair Value Measurements

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