12.1 Introduction
ASC 825-10
05-5 The Fair Value
Option Subsections of this Subtopic address both of the
following:
- Circumstances in which entities may choose, at specified election dates, to measure eligible items at fair value (the fair value option)
- Presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities.
05-6 See Topic 820
for guidance on fair value measurements.
10-1 The objective
of the guidance in the Fair Value Option Subsections of this
Subtopic is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions.
Entities
15-2 The guidance
in this Subtopic applies to all entities.
Under ASC 825, entities can elect the FVO to account for certain financial assets and
financial liabilities at fair value.1 The change in fair value of the eligible item that is elected under the FVO is
recognized in net income (or, for certain financial liabilities, in net income and OCI
as discussed in Section 12.4.1.2).
The FVO may be elected for any eligible item within the scope of ASC 825 (see Section 12.2). The ability to elect the FVO is not
predicated on the reliability of the fair value measurement. In ASC 820, the FASB
rejected a minimum-reliability threshold for items that are carried at fair value (under
the FVO or otherwise). That is, the FASB decided to allow fair value measurements for
items in financial statements even when they are not based on market-observable data. In
such circumstances, however, the data used for the measurement must reflect assumptions
that market participants would use in pricing the asset or liability (including
adjustments that market participants demand for the risk associated with the
unobservable data or the model used to determine fair value). In addition, entities are
required to disclose the categorization of fair value measurements within the fair value
hierarchy, which indicates whether significant inputs to those measurements are
observable or unobservable.
Footnotes
1
In these circumstances, the entity applies the fair value measurement guidance in
ASC 820.