Fair value measurements and disclosures

ASC 820 and fair value measurements and disclosures

Most entities have amounts that are recognized at fair value in their financial statements. ASC 820 defines fair value, sets out a framework for measuring it, and establishes fair value disclosure requirements. However, ASC 820 does not specify when an entity is required or permitted to measure assets, liabilities, equity instruments, or transactions at fair value; this requirement is addressed in other US GAAP.

An entity must consider the following issues in applying the fair value measurement framework in ASC 820:

Framework to measure and disclose fair value

The fair value measurement guidance was originally issued in September 2006. Although it has been subsequently amended since its original issuance, the general framework has not changed, and significant future changes are not expected. An entity needs to perform various steps to (1) prepare a fair value measurement that complies with the measurement principles in ASC 820 and (2) meet the disclosure requirements in ASC 820. An entity may apply the following step-by-step approach to measure and disclose fair value when the initial or subsequent measurement of an asset, liability, or equity instrument at fair value is required or permitted by other US GAAP:

Items required or eligible to be measured at fair value

With certain exceptions, the measurement guidance in ASC 820 applies whenever another Codification topic uses the phrase “fair value” to describe how an entity is required or permitted to measure financial and nonfinancial assets and liabilities, instruments classified in a reporting entity’s stockholders’ equity, or specific transactions, regardless of whether this measurement pertains to initial or subsequent recognition or to disclosure. Therefore, before applying the fair value measurement framework in ASC 820, entities must determine whether fair value measurement under ASC 820 is required or permitted by other US GAAP.

In addition, certain Codification topics permit, but do not require, an entity to measure an asset or liability at fair value. Most notably, ASC 825 permits entities to elect the fair value option to account for certain financial assets and financial liabilities at fair value. Entities may also elect to account for certain assets or liabilities, including nonfinancial items, at fair value according to other Codification topics (e.g., ASC 860-50 permits entities to recognize servicing assets and servicing liabilities at fair value). Any measurement of an item at fair value must be performed in accordance with ASC 820 unless the use of another measurement approach is specifically required by US GAAP.

Continue your fair value measurements and disclosures learning

Deloitte’s Roadmap Fair value measurements and disclosures (including the fair value option) comprehensively discusses the scope, measurement, and disclosure guidance in ASC 820 and other US GAAP.

This Roadmap is intended to help entities navigate the accounting guidance related to fair value measurements and disclosures, reduce complexity, and arrive at appropriate accounting conclusions.