1.3 History of Fair Value Requirements

Since the issuance of FASB Statement 157 (codified in ASC 820), the FASB has amended its fair value requirements a number of times. Notably, the Board issued ASU 2011-04 in May 2011 as part of its effort to converge its fair value measurement and disclosure requirements with those of the IASB, which released its counterpart standard, IFRS 13, in the same month. (However, while U.S. GAAP and IFRS Accounting Standards on fair value are now largely converged, certain differences remain. See Appendix B for a summary of those differences.)

The table below summarizes the significant amendments made to the fair value measurement and disclosure guidance since the issuance of FASB Statement 157.1

Table 1-1

Standard	Principal Amendments Made
FSP FAS 157-1	Excluded from the scope of the fair value measurement guidance the use of fair value for lease classification or measurement purposes.
FSP FAS 157-2	Delayed the effective date of FASB Statement 157 for nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis.
FSP FAS 157-3	Clarified the application of the fair value measurement guidance in an inactive market and provided a related illustrative example. Subsequently superseded by FSP FAS 157-4.
FSP FAS 157-4	Provided additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and includes guidance on identifying circumstances in which a transaction is not orderly.
FSP FAS 132(R)-1	Provided guidance on an employer’s fair value disclosures about plan assets of a defined benefit pension or other postretirement plan.
ASU 2009-05	Clarifies guidance on the fair value measurement of liabilities. Significant amendments include: In circumstances in which a quoted price in an active market for an identical liability is not available, an entity should measure fair value by applying (1) a valuation technique that uses the quoted price of the identical liability when traded as an asset (a Level 1 measurement) or quoted prices for similar liabilities or similar liabilities when traded as assets or (2) another valuation technique that is consistent with the fair value measurement principles in ASC 820. In measuring the fair value of a liability, an entity is not required to include a separate input or adjustment to other inputs related to the existence of a restriction that prevents that entity from transferring the liability.
ASU 2009-12	Provides a practical expedient for the fair value measurement of investments in entities that calculate net asset value (NAV) per share or its equivalent. This practical expedient allows entities to measure fair value on the basis of the investment’s NAV per share provided that the NAV of the investment is calculated in a manner consistent with the measurement guidance in ASC 946, including measurement of all or substantially all of the underlying investments of the investee in accordance with ASC 820. Requires entities to provide additional disclosures by category of investment, including information about redemption restrictions and unfunded commitments.
ASU 2009-16	Eliminates the practicability exceptions that allowed for (1) the use of the transaction price (an entry price) to measure the fair value, at initial recognition, of financial assets and liabilities under ASC 860 and (2) an exemption to the requirement to measure fair value if it is not practicable to do so for financial assets obtained and financial liabilities incurred in a sale under ASC 860.
ASU 2010-06	Amends ASC 820 to require new disclosures about (1) transfers between Levels 1 and 2 of the fair value hierarchy and (2) activity in the Level 3 rollforward. Also clarifies existing disclosure requirements related to (1) the level of disaggregation of classes of assets and liabilities and (2) inputs and valuation techniques used in fair value measurements. Note that several of these disclosure requirements were amended and simplified by later ASUs.
ASU 2011-04	Amends ASC 820 to converge many of the fair value measurement and disclosure requirements in U.S. GAAP with those in IFRS Accounting Standards. Since IFRS 13 was developed on the basis of FASB Statement 157, the amendments in this ASU primarily constitute (1) nonsubstantive wording changes to many of the fair value measurement and disclosure requirements in ASC 820 and other U.S. GAAP or (2) clarifications of the FASB’s intended application of these requirements. Specific amendments made by ASU 2011-04 include (1) introducing the concept of measuring the fair value of financial instruments that are managed within a portfolio on a net basis in certain circumstances, (2) applying premiums and discounts in a fair value measurement on the basis of the unit of account, and (3) requiring additional disclosures about fair value measurements (i.e., valuation process and sensitivity disclosures for Level 3 measurements, use of a nonfinancial asset that differs from its highest and best use, and the categorization by level within the fair value hierarchy for items that are not measured at fair value but for which fair value must be disclosed). Note that several of these disclosure requirements were amended and simplified by later ASUs.
ASU 2012-04	Clarifies the fair value disclosure requirements applicable to certain nonpublic entities.
ASU 2012-07	Eliminates the requirement that an entity incorporate into fair value measurements used in the impairment tests of unamortized film costs the effects of any changes in estimates resulting from the consideration of subsequent evidence if the information would not have been considered by market participants as of the measurement date. These amendments align the impairment assessment of unamortized film costs with the definition of fair value in ASC 820 because, to the extent that uncertainties are resolved or other information becomes known after the balance sheet date but before the financial statements are issued or available to be issued, such effects should not be incorporated with certainty into the fair value measurement as of the balance sheet date unless market participants would have made such assumptions. The ASU also clarifies that a valuation model used as of the measurement date should incorporate assumptions that market participants would have made about the uncertainty in timing and amount of cash flows as of the measurement date in accordance with ASC 820. Note that although the amendments in this ASU were made to ASC 926, they provide guidance that is relevant to the application of ASC 820 by analogy.
ASU 2013-03	Clarifies that the requirement to disclose the level of the fair value hierarchy within which fair value measurements are categorized in their entirety (i.e., Level 1, 2, or 3) does not apply to nonpublic entities for items that are not measured at fair value but for which fair value is disclosed.
ASU 2013-09	Defers indefinitely certain requirements to disclose quantitative information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic-entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities.
ASU 2014-13	Allows an entity that consolidates a collateralized financing entity (CFE) to elect to measure the financial assets and financial liabilities of the CFE by using a measurement alternative. Under the measurement alternative, the entity measures both the financial assets and the financial liabilities of the CFE by using the more observable of the fair value of the financial assets or the fair value of the financial liabilities.
ASU 2015-07	Removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured by using the practical expedient related to NAV per share.
ASU 2015-10	Makes the following amendments to ASC 820: Removes the practical expedient that allowed certain not-for-profit (NFP) entities not to recognize certain items at fair value if fair value cannot be measured with sufficient reliability. Clarifies that a change in price selected within a bid-ask spread is subject to the general accounting and disclosure guidance in ASC 820 on changes in valuation techniques. Clarifies that the disclosures for nonrecurring fair value measurements are provided as of the date of the measurement and not as of the period-end.
ASU 2016-01	Amends the fair value disclosure requirements to: Require public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure those fair values by using the exit price notion in a manner consistent with ASC 820, thereby eliminating the entry price method previously used by some entities for fair value disclosures of certain financial assets. Removes the practicability exception that allowed entities to avoid providing certain fair value disclosures for financial instruments under ASC 825 if it is impractical to determine fair value. Eliminates the requirement for entities other than public business entities to provide certain disclosures about the fair value of financial instruments that are not recognized at fair value on the balance sheet. ASUs 2018-03 and 2019-04 made additional amendments to ASU 2016-01 that affect fair value measurements of equity securities without readily determinable fair values; however, those amendments did not affect ASC 820.
ASU 2016-02	Requires that fair value measurements under ASC 842 conform to the fair value measurement guidance in ASC 820. This guidance was later affected by ASU 2019-01.
ASU 2016-19	Clarifies the difference between a valuation approach (i.e., cost, market, income) and a valuation technique and requires specific disclosures at the valuation technique level.
ASU 2018-09	Clarifies that when measuring the fair value of a liability or item classified in stockholders’ equity on the basis of the fair value of the corresponding asset from the perspective of a market participant that holds the identical item as an asset, any restrictions that affect the fair value of the asset should also be included in the fair value measurement of the liability or equity instrument.
ASU 2018-13	Simplifies and improves financial statement disclosures as part of the FASB’s disclosure effectiveness initiative. This ASU amends ASC 820 to (1) remove several fair value disclosure requirements, (2) modify certain disclosure requirements, and (3) add certain disclosure requirements for public business entities.
ASU 2022-03	Clarifies that when measuring the fair value of equity securities subject to contractual sale restrictions, an entity should not consider those restrictions.

Footnotes

Table 1-1 does not address certain insignificant amendments related to (1) conforming changes to definitions associated with other Codification topics, (2) minor conforming amendments resulting from changes made to other Codification topics, (3) minor technical corrections, and (4) maintenance updates.

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