Topic 820

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Topic 820 Fair Value Measurements and Disclosures

Topic ASC 820 (previously FAS 157) was issued by the Financial Accounting Standards Board (FASB) and has been effective since November 2007. Topic 820 provides a single definition and framework for fair value measurements to ensure consistency of application.

Topic ASC 820:

  • Defines fair value as the price an entity would receive when an asset is sold or the price an entity would pay when a liability is transferred.
  • Establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures.
  • Establishes a three-level hierarchy for fair value measurements based upon transparency of inputs to the valuation of an asset or liability as of the measurement date:
    • Level 1: These represent quoted prices in active markets for identical assets that a market participant can access at the measurement date. Exchange-listed equity securities or exchange-traded mutual fund shares are the best example of a Level 1 input.
    • Level 2: These are inputs that are observable either directly or indirectly. Examples here would include matrix pricing used to value fixed-income securities or prices obtained for unregistered funds that do not trade in a public market.
    • Level 3: These are inputs that are observable either directly or indirectly. Examples here would include matrix pricing used to value fixed-income securities or prices obtained for unregistered funds that do not trade in a public market.
  • Expands disclosures about fair value measurement. Such disclosures include:
    • a description of valuation methodologies utilized for the assets in Levels 2 and 3 (e.g., pricing sources, internal models, appraisals);
    • the level within the hierarchy in which each asset type falls as well as transfers between Levels 1 and Level 2; and
    • for those fair value measurements using Level 3 inputs, a reconciliation of the beginning and ending balances for the asset including changes within the period due to transfers, purchases and sales, and gross gain/loss activity.

References:

We hope that this information will assist you, but it should not be used or relied upon as a substitute for your own independent research. For a more comprehensive view of the standards/requirements, please visit the respective issuer's website.

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