Fair Value Measurement

ASC 820 establishes a single definition of fair value—the exit price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date—and one framework for measuring it and disclosing it whenever another Topic requires or permits fair value (820-10-15-1 through 15-2, with exceptions for Topic 718 share-based payment other than 718-40, Topic 330, Topic 606, and 610-20). The measurement is market-based rather than entity-specific: it assumes a transaction in the principal (or most advantageous) market, uses market-participant assumptions, ignores the entity's intent to hold or settle, presumes highest and best use for nonfinancial assets, and assumes transfer (not settlement) of liabilities and own-equity instruments including nonperformance and own credit risk. Entities apply the market, cost, or income approach consistently and maximize observable inputs, categorizing inputs in a three-level hierarchy with the whole measurement classified at the lowest level input that is significant to it (Level 1 quoted prices generally unadjusted; blockage factors prohibited). The industry Subtopic 820-940 supplements this for brokers and dealers, listing nonexclusive factors used to determine a financial instrument's fair value (820-940-30-1) and requiring disclosure when an instrument is carried below its quoted price (820-940-50-1).

Subtopics

1. 10Overall300 ¶

   ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price), and provides a single framework for measuring it plus related disclosures. Fair value is a market-based, not entity-specific, measurement, determined in the principal (or, absent one, most advantageous) market using assumptions market participants would use, maximizing observable and minimizing unobservable inputs. Inputs are categorized in a three-level hierarchy (Level 1 quoted prices, Level 2 other observable inputs, Level 3 unobservable inputs), with the whole measurement classified at the lowest level input significant to it.

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2. 940Financial Services—Brokers and Dealers5 ¶

   This industry Subtopic supplements ASC 820 for brokers and dealers in securities. It lists non-exhaustive factors broker-dealers have considered in determining the fair value of a financial instrument (issuer's financial standing, market liquidity, restrictions on salability, pending offerings or reorganizations, dealer pricing, recent trades, etc.) and requires specific disclosure when an instrument is carried below its quoted price.

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