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Chapter 10 — Subsequent Measurement

10.2 Definition of Fair Value

10.2 Definition of Fair Value

Footnotes

2
ASU 2022-03 (issued in June 2022) clarified this concept and added an example illustrating it (see ASC 820-10-55-22A). This clarification is consistent with our historical guidance.
3
The definition of a market participant in ASC 820-10-20 refers to parties that have a “reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary.” ASC 820-10-35-54A notes that “[a] reporting entity need not undertake exhaustive efforts to obtain information about market participant assumptions. However, a reporting entity shall take into account all information about market participant assumptions that is reasonably available.”
4
Quoted from the Background Information and Basis for Conclusions of ASU 2012-07. While this ASU specifically applies to impairment assessments of unamortized film costs, the requirement to consider all relevant information that is obtained after the measurement date but before the financial statements are issued (or available to be issued) is broadly applicable to all fair value measurements.
5
See ASC 820-10-35-54 in Section 10.4.2.
6
See ASC 820-10-35-54E in Section 10.6.1.
7
Note that this framework for evaluating subsequent information and events would not apply to (1) investments that are measured at NAV per share in accordance with the practical expedient in ASC 820-10-35-59 through 35-62 or (2) Level 1 inputs.
8
See Section 12.3.1.2 for discussion of the accounting for up-front costs when the FVO is elected for an eligible item.
9
For example, ASC 820-10-55-3(b) indicates that if an entity determines a fair value measurement for a machine that is installed and ready for use by using an observed price for a similar machine that is not installed or ready for use, the observed price should be “adjusted for transportation and installation costs so that the fair value measurement reflects the current condition and location of the machine (installed and configured for use).” Similarly, if an entity is estimating the fair value of a machine that is not installed and ready to use by using an observed price for a similar machine that is installed and ready for use, the observed price may need to be adjusted to reflect the fair value of the uninstalled machine. Thus, like the adjustments for transportation costs illustrated in Examples 10-7 and 10-8, adjustments for installation costs could be additive or subtractive.
10
As discussed in Section 4.3.2.2, the unit of account for a liability instrument that is measured at fair value excludes inseparable third-party credit enhancements in accordance with ASC 825-10-25-13. See also Section 10.2.7.3.
11
Although this EITF Issue was not codified, the concepts in it are consistent with the market-participant approach in ASC 820.