Fair Value Measurement: Practical Guidance and Implementation, 2nd Edition

CHAPTER TWO

Fair Value Measurement Standards and Concepts

The Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) 820, Fair Value Measurement, as amended and updated by Accounting Standards Update (ASU) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, is the latest FASB guidance on measuring fair value whenever fair value accounting is required or permitted in other accounting standards. The fair value measurement and disclosure requirements amendments contained in ASU 2011-04 are effective for all entities with reporting periods beginning after December 15, 2011. The amended guidance in ASC 820 encompasses all the fair value credit crisis projects that the FASB undertook in the wake of the financial crisis. It encompasses the FASB and the IASB's converged guidance for measuring fair value. The FASB has completed all fair value projects on its project list; therefore, it is unlikely that there will be any significant changes to ASC 820 in the foreseeable future.

This chapter provides the reader with an overview of fair value measurement in U.S. GAAP as provided in ASC 820 and amended for convergence by ASU 2011-04. The overview will provide a foundation for understanding the application of fair value measurement, which is covered in the remainder of this book. This chapter also briefly covers some of the more important concepts relating to the fair value option from FASB ASC 825,