Wiley GAAP 2013: Interpretation and Application of Generally Accepted Accounting Principles

CHAPTER 6

FAIR VALUE

Perspective and Issues

The Debate over the Use of Fair Value Measurements

ASC 820, Fair Value Measurement

Definitions of Terms

Concepts, Rules, and Examples

The Mixed Attribute Model

Objectives

Definition

Scope

Measurement Principles and Methodologies

Item identification and unit of account

Principal or most advantageous market and market participants

Selection of the valuation premise for asset measurements

Risk assumptions when valuing a liability

Inputs

Valuation techniques

Measurement considerations

Fair Value Disclosures

Objectives

ASC 825-10-25, Financial Instruments: The Fair Value Option

Introduction

Eligible financial assets and financial liabilities

Flexibility of application

Timing of the election

Financial statement presentation and disclosure

PERSPECTIVE AND ISSUES

The Debate over the Use of Fair Value Measurements

The communities of financial statement preparers, users, auditors, standard setters, and regulators have engaged in a long-standing debate regarding the relevance, transparency, and decision-usefulness of financial statements prepared under the current US GAAP “mixed attribute” model for measuring assets and liabilities.

Investors and creditors that use financial statements for decision-making purposes argue that reporting financial instruments at historical cost or amortized cost deprives them of important information about the economic impact on the reporting entity of real economic gains and losses associated with changes in the fair ...