2

Fair Value Concept

All values are anticipations of the future.

—Oliver Wendell Holmes (1841–1935), American jurist

CHAPTER 1 DEALT WITH THE SIGNIFICANCE OF VALUE. Now we turn to fair value as a concept; this is followed in Chapter 3 by a discussion of the framework used to determine the appropriate amount. While fair market value or market value has been used in tax codes of many nations for more than a century, fair value is still very new; in 1979, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 33, Financial Reporting and Changing Prices, which required firms to disclose in the notes to their financial statements current cost information, which in effect reflected market values. In the United States, fair value became fully developed with a common definition for all users in 2006 on the issuance of the SFAS 157. In May 2011, with minor improvements, as Accounting Standards Codification (ASC) 820, it was fully converged with International Financial Reporting Standards (IFRS) 13, integrating the notion in just about every country around the world and making financial statements more significant worldwide.

RELEVANT PRONOUNCEMENTS

Over 60 Generally Accepted Accounting Principles (GAAP) in the United States and IFRS pronouncements incorporate fair value in some manner. The main assets, liabilities, or transactions whose accounting treatment is affected include:

  • Debt and equity securities
  • Almost all assets acquired and ...

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