Fair Value Framework

Get a good idea and stay with it. Work at it until it's done and done right.

—Walt Disney (1901–1960), American showman

THE PREVIOUS CHAPTER DISCUSSED the concept of fair value; this one deals with calculating the amount. Then we go on to the more interesting topics of “Taming the Future” (Chapter 4) and “Projecting What Is to Come” (Chapter 5). The two converged standards, ASC 820 and IFRS 13, define an exit price and create an underlying conceptual framework for establishing the necessary amounts. This has six stages:

1. Determine the unit of account.

2. Evaluate the premise of value.

3. Assess the principal market.

4. Establish the most advantageous market.

5. Select appropriate valuation methods.

6. Estimate fair value conclusions.


The first stage in arriving at the fair value of an asset, security, technology, liability, or business interest is to clearly identify exactly what is to be valued; this is known as the unit of account. It may be a single asset (a stand-alone office building), a liability or security, a group of related assets (a functioning machine shop), a reporting or cash-generating unit, an ownership interest in an entity, or even a complete enterprise.

It is based on the level at which the accounting for the item takes place and the extent it is required to be aggregated or disaggregated in accordance with any applicable GAAP or IFRS rules. For example:

  • Depreciation is usually calculated for ...

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