Tag Archives: ASC 820

Fair Value Measurements and Disclosures, ASC 820

–> FSP FAS 157-4, April 2009

Fair Value Measurements when the Markets are not Active

FASB Staff Position FAS 157-4, April 2009
“Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”

SFAS 157, September 2006
“Fair Value Measurements”

Fair Value Hierarchy
Level 1: Quoted prices in active market
Level 2: Observable inputs other than Level 1 inputs
Level 3: Unobservable inputs

Level 2 inputs include:
1. Quoted prices of similar assets in active markets
2. Quoted prices in the markets that are not active

FSP FAS 157-4 addresses:
1. When the “volume and level” of activity decreased significantly
2. When the transactions are not orderly

 Quoted prices need a significant adjustment
–> if the “volume and level” of activity decreased significantly
–> in the markets that are not active: Level 2 inputs
–> FSP FAS 157-4 does not change Level 1 inputs

FSP FAS 157-4 provides additional guidance
–> when the transactions are not orderly

FSP FAS 157-4 superseded FSP FAS 157-3

 

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Fair Value Measurements and Disclosures, ASC 820

Fair Value Measurements

SFAS N0. 157, September 2006
“Fair Value Measurements”

Fair Value is
the price an entity would receive when an asset is sold
or
the price an entity would pay when a liability is transferred.

Such transaction should be
an orderly transaction
between market participants
at the measurement date.

Valuation Techniques

Three approaches
1. Market approach
–> based on information from market transactions

2. Income approach
–> based on future income
–> e.g., present value techniques

3. Cost approach
–> based on current replacement cost

Inputs to Valuation Techniques

Three levels of inputs: Fair Value Hierarchy

1. Level 1 inputs
–> unadjusted quoted prices
in active markets
for identical assets or liabilities

2. Level 2 inputs
–> quoted prices
for similar assets or liabilities
in active markets
–> quoted prices
for identical or similar assets or liabilities
in markets that are not active

3. Level 3 inputs
–> unobservable inputs
for the asset or liability

 

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