Audit and Accounting Guide Depository and Lending Institutions, 2nd Edition

Chapter 20 Fair Value

Gray shaded text in this chapter reflects guidance issued but not yet effective as of the date of this guide, July 1, 2017, but becoming effective on or prior to December 31, 2017, exclusive of any option to early adopt ahead of the mandatory effective date. Unless otherwise indicated, all unshaded text reflects guidance that was already effective as of the date of this guide.

Introduction

20.01 The following section provides a discussion about fair value measurements and disclosures and the fair value option. FASB Accounting Standards Codification (ASC) 820, Fair Value Measurement, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. FASB ASC 825, Financial Instruments, allows entities to choose, at specified election dates, to measure eligible items at fair value (the fair value option). The following paragraphs summarize FASB ASC 820 and FASB ASC 825 but are not intended as a substitute for reviewing this guidance in its entirety.

Accounting and Financial Reporting¹

Definition of Fair Value

20.02 FASB ASC 820-10-20 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. The FASB ASC glossary defines an orderly transaction as a transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities ...