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U.S.: CPE Courses Offered

820 Fair Value Measurement

CPE Courses Offered Fair Value Measurements

Fair Value Option for Financial Instruments

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Summary of IAS/IFRS and U.S. GAAP

820 Fair Value Measurement

Summary of IAS/IFRS and U.S. GAAP

 As a result of the issuance of IFRS 13, differences between U.S. GAAP and IFRSs on fair value measurement

have narrowed so they are very similar. However, certain differences remain. For a discussion of these

differences, see the “10.1. Other Matters –Fair Value Measurement ” section of the publication Comparison

between U.S. GAAP and International Financial Reporting Standards. The following summarizes the significant

differences between Topic 820 and IFRS 13. The information is derived primarily from the Summary section

of ASU No. 2011-04, Fair Value Measurement  and the Basis of Conclusions in IFRS 13.



IAS/IFRS IFRS 13 Fair Value Measurement defines fair value, establishes a framework for measuring fair value, and

requires disclosure about fair value measurements. The fair value measurement guidance applies to other

International Accounting Standards and International Financial Reporting Standards (collectively IFRSs) that require or permit fair value measurement (both initial and subsequent measurement) or disclosure about fair

value measurements (with certain exceptions).

U.S. GAAP Topic 820 Fair Value Measurement  provides a consistent definition of fair value and how entities should

measure fair value when required to or have elected to use fair value for recognition or disclosure purposes.

Topic 820 Fair Value Measurement defines fair value, establishes a framework for measuring fair value, and requires disclosure about fair value measurements. The fair value measurement guidance applies to other

accounting guidance that requires or permits fair value measurement (both initial and subsequent

measurement) or disclosure about fair value measurements (with certain exceptions).

Summary Discussion

Different assets, liabilities, and equity

instruments are measured at fair

value.

The Boards separately discussed the scope of their respective fair value

measurement standards because of the differences between U.S. GAAP and IFRSs

in the measurement bases specified in other standards for both initial recognition and subsequent measurement. [Topic 820 paragraph BC14; IFRS 13 paragraph

BC19 ]

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

There are different accounting

requirements for measuring the fair

value of investments in investment companies.

Topic 946, Financial Services—Investment Companies , requires an investment

company to recognize its underlying investments at fair value at each reporting

period. Topic 820 provides a practical expedient that permits an entity with an investment in an investment company to use as a measure of fair value in specific

circumstances the reported net asset value without adjustment. IFRS 10

Consolidated Financial Statements  requires an investment company to

consolidate its controlled underlying investments. Because IFRSs do not have

accounting requirements that are specific to investment companies, the IASB decided that it would be difficult to identify the when such a practical expedient could

be applied given the different practices for calculating net asset values in

jurisdictions around the world. For example, investment companies may report in

accordance with national GAAP, which may have recognition and measurement

requirements that differ from those in IFRSs (i.e., the underlying investments might not be measured at fair value or they might be measured at fair value in accordance

with national GAAP, not IFRSs). [IFRS 13 paragraph BC238(a) ]

There are different requirements for

measuring the fair value of a deposit

liability.

In U.S. GAAP, Topic 825, Financial Instruments , and Topic 942, Financial Services

—Depository and Lending , describe the fair value measurement of a deposit

liability as the amount payable on demand at the reporting date. Paragraph 47  of IFRS 13 states that the fair value measurement of a financial liability with a demand

feature (e.g., demand deposits) cannot be less than the present value of the

amount payable on demand. [IFRS 13 paragraph BC238(b)]

There are different disclosure

requirements.

Because IFRSs generally do not allow net presentation for derivatives, the amounts

disclosed for fair value measurements categorized within Level 3 of the fair value

hierarchy might differ. The Boards are reviewing the presentation requirements for offsetting financial assets and financial liabilities.

IFRSs require a quantitative sensitivity analysis for financial instruments that are

measured at fair value and categorized within Level 3 of the fair value hierarchy.

Topic 820  has different disclosure requirements for nonpublic entities. The FASB

concluded that some of the disclosures should not be required for nonpublic entities because of the characteristics of the users of the financial statements of those

entities. In contrast, the IASB's International Financial Reporting Standard for Small

and Medium-sized Entities  addresses the accounting for entities that do not have

public accountability and the disclosures about their fair value measurements. [IFRS

13 paragraph BC238(c) ]

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IAS/IFRS: Scope

10 Overall

Background Some IFRSs require or permit entities to measure or disclose the fair value of assets, liabilities or their own

equity instruments. Because those IFRSs were developed over many years, the requirements for measuring

fair value and for disclosing information about fair value measurements were dispersed and, in many cases,

did not articulate a clear measurement or disclosure objective. Some of those IFRSs contained limited

guidance about how to measure fair value, whereas others contained extensive guidance and that guidance

was not always consistent across those IFRSs that refer to fair value. Inconsistencies in the requirements for

measuring fair value and for disclosing information about fair value measurements contributed to diversity

in practice and reduced the comparability of information reported in financial statements. IFRS 13 remedies

that situation. IFRS 13 is the result of work by the IASB and the FASB to develop common requirements for

measuring fair value and for disclosing information about fair value measurements in accordance with IFRSs

and US generally accepted accounting principles (GAAP).

Scope (IAS/IFRS)

Summary IFRS 13 Fair Value Measurement  defines fair value, establishes a framework for measuring fair value, and

requires disclosure about fair value measurements. The fair value measurement guidance applies to other

IFRSs that require or permit fair value measurement (both initial and subsequent measurement) or

disclosure about fair value measurements, except in specified circumstances. IFRS 13 explains how to

measure- and disclose fair value information for financial reporting, but it does not change the types of

assets and liabilities that are required to or are permitted to be measured at fair value or introduce new fair

value measurements or valuation standards.

Limitations: IFRS 13 does not apply to (IFRS 13, paragraph 6 and 7 ):

Share-based payment transactions within the scope of IFRS 2 Share-based Payment  (see the 718

Compensation − Stock Compensation  chapter);

Leasing transactions within the scope of IAS 17 Leases  (see the 840 Leases  chapter); and

Measurements that have some similarities to fair value but are not fair value (e.g., net realizable value

in IAS 2 Inventories  [see the “10 Overall – Cost Methods-Alternative Methods ” section of the 330

Inventory chapter] or value in use in IAS 36 Impairment of Assets  [see the “10 Overall – Recoverability

of Carrying Amounts – General” section of the 360 Property, Plant, and Equipment chapter]).

The disclosure requirements of IFRS 13 are not required for the following:

Plan assets measured at fair value in accordance with IAS 19 Employee Benefits ;

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Retirement benefit plan investments measured at fair value in accordance with IAS 26 Accounting and

Reporting by Retirement Benefit Plans ; and

Assets for which recoverable amount is fair value less costs of disposal in accordance with IAS 36.

An entity that manages a group of financial assets and financial liabilities on the basis of its net exposure to

either market risks or credit risk may apply an exception to IFRS 13 (as an accounting policy decision) for

measuring fair value (see the “10 Overall – Application to Financial Assets and Liabilities with Offsetting

Positions ” section of this chapter).

IAS/IFRS Literature International Financial Reporting Standards (IFRS)

 13.1 – .4, Fair Value Measurement – Objective

 13.5 – .8, Fair Value Measurement – Scope

 13.48, Fair Value Measurement – Measurement – Application to Financial Assets and Financial

Liabilities with Offsetting Positions in Market Risks or Counterparty Credit Risk

 13.BC1 – .BC18, Fair Value Measurement – Basis for Conclusions – Introduction

 13.BC19 – .BC26, Fair Value Measurement – Basis for Conclusions – Scope

Interpretations International Accounting/Financial Reporting Standards Guide

Part I: Overview

Chapter 3: Fair Value Measurement

 Overview

 Background

 Objective

 Scope

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U.S.: Scope

10 Overall

Scope (U.S. GAAP)

Summary Topic 820 Fair Value Measurement  defines fair value, establishes a framework for measuring fair value, and

requires disclosure about fair value measurements. The fair value measurement guidance applies to other

accounting guidance that requires or permits fair value measurement (both initial and subsequent

measurement) or disclosure about fair value measurements. It does not:

Apply to accounting guidance that addresses share-based payment transactions (see the 718

Compensation − Stock Compensation  chapter, excluding the 40 Employee Stock Ownership Plans 

section of that chapter, and the "50 Equity-Based Payments to Non-Employees " section of the 505

Equity chapter);

Eliminate the practicability exceptions to fair value measurements (see paragraph 820-10-15-3 );

Apply measurements that are similar to fair value but that are not intended to measure fair value, for

example, measurements that are based on, or otherwise use, standalone selling price, and inventory

pricing (see the “10 Overall – Cost Methods – Alternative Methods " section of the 330 Inventory

chapter);

Apply to accounting guidance that addresses leasing transactions (see the 840 Leases  chapter) (this

exception does not apply to assets acquired and liabilities assumed in a business combination or an

acquisition by a not-for-profit entity that are required to be measured at fair value under Topic 805,

Business Combinations , regardless of whether those assets and liabilities are related to leases);

Apply to the recognition and measurement of revenue from contracts with customers (see the 606

Revenue from Contracts with Customers  chapter); or

Apply to the recognition and measurement of gains and losses on the derecognition of nonfinancial

assets (see the “20 Gains and Losses from the Derecognition of Nonfinancial Assets” section of the

610 Other Income chapter).

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 The disclosure requirements in paragraphs 820-10-50-1C through 50-8 do not apply to plan assets of a

defined benefit pension or other postretirement plan that are accounted for in accordance with Topic 715.

Instead, the disclosures required in paragraphs 715-20-50-1(d)(iv) and 715-20-50-5(c)(iv) shall apply for

fair value measurements of plan assets of a defined benefit pension or other postretirement plan.

Apply to accounting guidance that addresses share-based payment transactions (including those

described in the 718 Compensation − Stock Compensation  chapter, except for the 40 Employee Stock

Ownership Plans section of that chapter,) which is within the scope of this chapter);

Eliminate the practicability exceptions to fair value measurements (see paragraph 820-10-15-3 );

Apply measurements that are similar to fair value but that are not intended to measure fair value, for

example, measurements that are based on, or otherwise use, standalone selling price, and inventory

pricing (see the “10 Overall – Cost Methods – Alternative Methods " section of the 330 Inventory

chapter);

Apply to the recognition and measurement of revenue from contracts with customers (see the 606

Revenue from Contracts with Customers  chapter); or Apply to the recognition and measurement of

gains and losses on the derecognition of nonfinancial assets (see the “20 Gains and Losses from the

Derecognition of Nonfinancial Assets” section of the 610 Other Income chapter).

Topic 820 specifies how to measure fair value and disclose fair value information; it does not specify when

entities should measure assets and liabilities at fair value or introduce new fair value measurements.

An entity that manages a group of financial assets and financial liabilities on the basis of its net exposure to

either market risks or credit risk may apply an exception to Topic 820 (as an accounting policy decision) for

measuring fair value (see the “Application to Financial Assets and Liabilities with Offsetting Positions ”

[Effective after the adoption of the amendments in ASU 2016-02 .]

Apply to accounting guidance that addresses share-based payment transactions (see the 718

Compensation − Stock Compensation chapter, excluding the 40 Employee Stock Ownership Plans section of

that chapter, and the "50 Equity-Based Payments to Non-Employees" section of the 505 Equity chapter);

Eliminate the practicability exceptions to fair value measurements (see paragraph 820-10-15-3);

Apply measurements that are similar to fair value but that are not intended to measure fair value, for

example, measurements that are based on, or otherwise use, standalone selling price, and inventory

pricing (see the “10 Overall – Cost Methods – Alternative Methods" section of the 330 Inventory chapter);

Apply to the recognition and measurement of revenue from contracts with customers (see the 606

Revenue from Contracts with Customers chapter); or

Apply to the recognition and measurement of gains and losses on the derecognition of nonfinancial

assets (see the “20 Gains and Losses from the Derecognition of Nonfinancial Assets” section of the 610

Other Income chapter).

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section of this chapter.

See the “Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) ”

section of this chapter for a discussion of a practical expedient available to a reporting entity to estimate the

fair value of an investment using the net asset value per share (or its equivalent) of the investment.

U.S. GAAP Literature SEC Staff Views

 Remarks by Cheryl K. Tjon-Hing, Quality Fair Value Measurements (December 2006)

FASB Accounting Standards Codification

820, Fair Value Measurement, 10 Overall

 05 Overview and Background, paragraphs 05-1 through 05-1D

15 Scope and Scope Exceptions

 Overall Guidance, paragraph 15-1

Other Considerations

 Topics and Subtopics Not within Scope, paragraph 15-2

 Practicability Exceptions to This Topic, paragraph 15-3

 Fair Value Measurements of Investments in Certain Entities That Calculate Net Asset Value

per Share (or Its Equivalent), paragraphs 15-4 through 15-5

20 Glossary

 Fair Value

 Market Participants

 Orderly Transaction

 30 Initial Measurement, paragraph 30-1

 35 Subsequent Measurement, paragraph 35-1

 50 Disclosure – Tabular Format Required, paragraph 50-10

 55 Implementation Guidance and Illustrations – Illustrations – Example 6: Restricted Assets –

Case A: Restriction on the Sale of an Equity Instruments, paragraph 55-53

Other Guidance AICPA Audit and Accounting Guide (AAG)

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 AVG, Assets Acquired to Be Used in Research and Development Activities – Chapter 1: Valuation

Techniques Used to Measure Fair Value of In-Process Research and Development Assets

 AVG, Assets Acquired to Be Used in Research and Development Activities – Chapter 6: Valuation of

In-Process Research and Development Assets

 AVG, Testing Goodwill for Impairment – Chapter 1: Concepts and Application of Financial

Accounting Standards Board Accounting Standards Codification 820

 AVG, Testing Goodwill for Impairment – Chapter 4: Measuring Fair Value of a Reporting Unit

 FASB ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting

 FASB ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to

the Disclosure Requirements for Fair Value Measurement

FASB ASU No. 2011-04, Fair Value Measurement (Topic 820)

Background Information and Basis for Conclusions

 Introduction, paragraphs BC1 through BC3

 Background Information, paragraphs BC4 through BC13

 Scope, paragraphs BC15 through BC18

 Accounting Guidance – Overall Amendments, paragraphs BC19 through BC20

Interpretations Derivatives and Hedging – Interpretations of U.S. GAAP

Derivatives and Hedging – Overall (815-10)

Paragraphs 815-10-35-1 through 35-3: Subsequent Measurement – General

 815-10-35-1.A: Fair Value Measurement May Give Rise to Temporary Differences

 815-10-35-1.B: Fair Value Measurement

Financial Assets and Liabilities – Sales, Transfers, and Extinguishments: Interpretations of U.S.

GAAP

Transfers and Servicing — Sales of Financial Assets (860-20)

Paragraphs 860-20-30-1 through 30-4: Initial Measurement – General

 860-20-30-1.A: Fair Value Measurement

Financial Instruments

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Part V: Pervasive Issues – Chapter 19: Fair Value Measurements

 Overview

 Scope

Insights on Fair Value Measurements

 Fair value measurements principles under US GAAP

Interpretations of Topic 820, “Fair Value Measurements and Disclosures”

 A. Overview and Scope of Topic 820

 Fair Value Accounting: Measurement, Disclosure, and the Fair Value Option

Accounting for Compensation Arrangements

Chapter 13: Accounting for Nonemployee Share-Based Payment Awards

 Paragraphs 13.13

 Chapter 13: Accounting for Nonemployee Share-Based Payment Awards, Improvements to

Nonemployee Share-Based Payment Award Accounting (ASU 2018-07), paragraphs 13.37 – 13.39

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IAS/IFRS: Definition of Fair Value

Definition of Fair Value (IAS/IFRS)

Summary Fair value is defined by IFRS 13 Fair Value Measurement as “the price that would be received to sell an asset or

paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

Fair value is a market-based measurement and not an entity-specific measurement. A fair value

measurement requires assumptions (including assumptions about risk) that market participants would use.

Market approach is defined as a “valuation technique that uses prices and other relevant information

generated by market transactions involving identical or comparable (ie similar) assets, liabilities or a group

of assets and liabilities, such as a business (IFRS 13, Appendix A .)” The valuation of the asset is dependent

on market information and is not affected by the entity that owns the asset or holds the liability.

Proper identification of market participants is a key concept underlying the measurement under the market

approach (see the “10 Overall – Market Participants ” section of this chapter).

The Fair Value Measurement Approach

The objective of a fair value measurement is to determine the price that would be received to sell an asset or

paid to transfer a liability at the measurement date. A fair value measurement requires an entity to

determine:

The particular asset or liability that is the subject of the measurement, consistently with its unit of

account (see the “10 Overall – The Asset or Liability ” section of this chapter). Unit of account is

defined as the “level at which an asset or a liability is aggregated or disaggregated in an IFRS for

recognition purposes (Appendix A).

For a nonfinancial asset, the valuation premise that is appropriate for the measurement, consistently

with its highest and best use (see the “10 Overall – Application to Non-Financial Assets ” section of

this chapter). (Highest and best use is the use that would maximize the value of the non-financial

asset or the group of assets and liabilities.)

The principal (or most advantageous) market for the asset or liability (see the 10 Overall – The

Transaction ” section of this chapter). The principal market is the one with greatest volume and

activity related to the asset or liability and the most advantageous is the amount that would be received

after considering the most advantageous transaction and delivery costs.

The valuation technique(s) appropriate for the measurement, considering the availability of data with

which to develop inputs that represent the assumptions that market participants would use in pricing

the asset or liability and the level of the fair value hierarchy within which the inputs are categorized.

(See the “10 Overall – Valuation Techniques ” section of this chapter for a discussion of

measurement methods in IFRS 13 as well as detailed guidance on the definition the fair value hierarchy

which determines the classification of each asset and liability measured at fair value in the levels 1, 2

and 3.)

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IAS/IFRS Literature International Financial Reporting Standards (IFRS)

 13.1 – .4, Fair Value Measurement – Objective

 13.9 – .10, Fair Value Measurement – Measurement – Definition of Fair Value

 13.A, Fair Value Measurement – Appendix A: Defined Terms

 13.B2, Fair Value Measurement – Appendix B: Application Guidance – The Fair Value Measurement

Approach

 13.BC27 – .BC45, Fair Value Measurement – Basis for Conclusions – Measurement – Definition of Fair

Value

Interpretations International Accounting/Financial Reporting Standards Guide

Part I: Overview

Chapter 3: Fair Value Measurement

 Objective

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U.S.: Definition of Fair Value

Definition of Fair Value (U.S. GAAP)

Summary Fair value is defined by Topic 820 Fair Value Meas