2.3 Application of ASC 820 to Specific Assets, Liabilities, and Equity Instruments

2.3.1 Notes Receivable and Notes Payable

2.3.1.1 Measurement

ASC 835-30 addresses the imputation of interest on notes receivable and notes payable. At initial recognition, an entity is required to calculate the appropriate discount or premium so that interest income or expense on the note receivable or note payable can be appropriately recognized in accordance with the interest method. When a note receivable or note payable is initially recognized on the basis of a present value technique (i.e., present value is used to initially recognize the note receivable or payable), the measurement is a fair value measurement. The discount rate used in the initial measurement (e.g., the rate commensurate with the risk) embodies the same notion as the discount rate used in the traditional approach (or the discount rate adjustment technique) described in FASB Concepts Statement 7 and clarified in ASC 820. Accordingly, the guidance in ASC 820-10-55-4 through 55-20 and ASC 820-10-55-33 and 55-34 on using present value techniques to measure fair value applies to initial measurements required under ASC 835-30 as well as to similar measurements required under other Codification topics.

The fair value measurement guidance in ASC 820 applies to the subsequent measurement of a note receivable or note payable only if (1) it is subsequently measured at fair value on a recurring basis in accordance with the FVO in ASC 825 or another Codification topic or (2) an impairment loss or recovery is recognized for a note receivable on the basis of a fair value measurement (i.e., a nonrecurring fair value measurement).

Connecting the Dots

An impairment loss may be recognized for an individual note or loan receivable on the basis of a present value calculation in accordance with ASC 310-10 or ASC 326-20. In this circumstance, the measurement attribute of the impaired note or loan receivable is the present value of expected future cash flows discounted at the instrument’s original effective interest rate. This is not a fair value measurement because a fair value measurement would incorporate the current market discount rate. However, if impairment is measured on the basis of a practical expedient, such as the fair value of the underlying collateral or, for entities that have not yet adopted ASU 2016-13, the loan’s observable market price, the fair value measurement guidance in ASC 820 does apply. Thus, the measurement and disclosure provisions of ASC 820 do not apply to a present value measurement but do apply to a measurement that is based on an observable market price or the related collateral’s fair value (even if the impairment is recognized on the basis of the fair value of collateral, less costs to sell).

2.3.1.2 Disclosure

ASC 820’s disclosure requirements do not apply to fair value measurements at initial recognition. Therefore, the initial measurement of notes receivable or payable on the basis of a present value technique is not subject to the disclosure requirements of ASC 820. ASC 820’s disclosure requirements related to subsequent measurement would apply only if (1) a note receivable or note payable is subsequently measured at fair value on a recurring basis in accordance with the FVO in ASC 825 or another Codification topic or (2) an impairment loss or recovery is recognized for a note receivable on the basis of a fair value measurement (i.e., a nonrecurring fair value measurement). The fair value disclosures required by ASC 825-10-50-10 through 50-15 apply to notes receivable and notes payable, which are financial instruments.

2.3.2 Certain Financial Instruments

2.3.2.1 Measurement

2.3.2.1.1 Financial Instruments for Which the FVO Has Been Elected

ASC 825 allows entities to irrevocably elect to account for some financial assets and financial liabilities at fair value, with changes in fair value reported in earnings or other comprehensive income (OCI) (i.e., the FVO).40 The measurement guidance in ASC 820 applies to such fair value measurements. See Chapter 12 for more information about the FVO.

2.3.2.1.2 Equity Securities Without Readily Determinable Fair Values

Under ASC 321-10-35-2, entities can elect to measure equity securities without readily determinable fair values at “cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.” When the investment is determined to be impaired on the basis of a qualitative assessment, or there is an observable price change in an orderly transaction, entities that have made the election in ASC 321-10-35-2 must remeasure such equity securities at fair value in accordance with ASC 820. ASC 321-10-55-9 indicates that the adjustments to the carrying value of an equity security without a readily determinable fair value should “reflect the fair value of the security as of the date that the observable transaction for the similar security took place.”

Regardless of whether the observable price arises from a transaction involving the identical or a similar security, that adjustment reflects a fair value measurement under ASC 820. Thus, any adjustment to the carrying amount of an equity security that is accounted for under the measurement alternative in ASC 321-10-35-2 represents a fair value measurement under ASC 820.

In paragraph BC112 of ASU 2019-04, the FASB addresses how to measure the fair value change under ASC 321-10-35-2 that arises from an observable price involving the identical or a similar security:

The Board believed that, in most cases, the observable price change in an orderly transaction of the identical or similar investment of the same issuer would generally represent the fair value change in that investment. The Board intended a consistent remeasurement at fair value for investments accounted for under the measurement alternative upon identifying (a) an orderly transaction of the identical or similar investment of the same issuer, (b) an orderly transaction of a similar investment of the same issuer, and (c) impairment. Therefore, the Board intended to require a nonrecurring fair value measurement in accordance with Topic 820 upon the occurrence and identification of any remeasurement event described in Topic 321 for equity securities without readily determinable fair value accounted for under the measurement alternative.

See Section 10.10.2 for further discussion of fair value measurements related to observable price changes.

2.3.2.2 Disclosure

2.3.2.2.1 Disclosures About Financial Instruments Under ASC 825

ASC 825 requires certain fair value disclosures about financial instruments, including disclosures related to (1) financial instruments measured at fair value on a recurring basis under the FVO or another Codification topic and (2) certain financial instruments that are not measured at fair value on a recurring basis. As discussed in Section 11.2.2, there are exceptions to these disclosure requirements for certain financial instruments and the fair value disclosure requirements for financial instruments that are not measured at fair value on a recurring basis apply only to public business entities. The measurement guidance in ASC 820 applies to all fair value measurements of financial instruments that are disclosed under ASC 825. For example, an entity that is disclosing the fair value of a financial liability under ASC 825 must incorporate the instrument’s nonperformance risk (i.e., the effect of the entity’s own credit standing, taking into account, when appropriate, any credit enhancements related to the liability) in accordance with ASC 820-10-35-17 and 35-18.

2.3.2.2.2 Cash Equivalents

The disclosure requirements for cash equivalents under ASC 820 and ASC 825 depend on whether the cash equivalents are reported at fair value in the statement of financial position.

2.3.2.2.2.1 Cash Equivalents Measured at Fair Value

If a cash equivalent is measured at fair value in the statement of financial position, an entity should provide all of the ASC 820 disclosures required for assets measured at fair value on a recurring basis as well as the financial instrument disclosures required by ASC 825. For example, assume that an entity has an investment in a debt security that meets the definition of a cash equivalent and is presented as such in accordance with ASC 320-10-45-13. If the debt security is classified as trading under ASC 320, it is recognized at fair value in the statement of financial position. Therefore, in such cases, the entity would classify the debt security within the ASC 820 fair value hierarchy and provide the related fair value disclosures for recurring fair value measurements reported in the statement of financial position. See Chapter 11 for more information.

2.3.2.2.2.2 Cash Equivalents Measured at Amortized Cost

If a cash equivalent is measured at amortized cost in the statement of financial position, an entity is only required to provide the ASC 825 disclosures for financial instruments that are not measured at fair value (if applicable). For example, assume that an entity invests in a traditional CD from a bank (i.e., not a “brokered CD”) and that the CD’s original maturity is 60 days. The CD does not meet the definition of a security and therefore is not within the scope of ASC 320.41 The entity has determined that it will present the CD in cash equivalents in the statement of financial position, at amortized cost, in accordance with the definition of cash equivalents and ASC 320-10-45-13. However, the CD is a financial instrument; therefore, the disclosure requirements in ASC 825-10-50-10 apply to the CD held as a cash equivalent. For more information about the applicability of the disclosure requirements in ASC 825, see Section 11.2.2.2.

2.3.2.2.3 Equity Securities Without Readily Determinable Fair Values

As discussed in Section 2.3.2.1.2, an adjustment to the carrying amount of an equity security that is accounted for by using the measurement alternative under ASC 321-10-35-2, regardless of whether the adjustment is related to an observable price change or an impairment, represents a fair value measurement under ASC 820. Therefore, the nonrecurring disclosure requirements of ASC 820 are applicable during any financial reporting period for which such an adjustment is recognized. However, ASC 825’s disclosure requirements related to financial instruments that are not measured at fair value do not apply to equity securities that are accounted for by using the measurement alternative under ASC 321-10-35-2.

2.3.2.2.4 Equity Method Investments

An entity does not need to provide the fair value disclosures required by ASC 820 or ASC 825 for an equity method investment accounted for under ASC 323. However, if the investment is recognized at fair value through earnings in accordance with the ASC 825 FVO or as a result of the application of specialized accounting guidance (e.g., ASC 946), an entity must provide all relevant fair value disclosures in ASC 820 that pertain to items measured at fair value on a recurring basis.42 In addition, if an equity method investment recognized under ASC 323 is other-than-temporarily impaired (resulting in a write-down to fair value), the entity must provide all relevant ASC 820 fair value disclosures pertaining to items measured at fair value on a nonrecurring basis.

While the ASC 820 and ASC 825 fair value disclosures are not required for equity method investments recognized under ASC 323 that have not been written down to fair value as a result of an other-than-temporary impairment, an entity can voluntarily provide these disclosures for investments accounted for under the equity method. One purpose of providing such disclosures may be to give a more complete picture of the investment’s value.

An entity that elects to provide fair value disclosures for equity method investments should apply a rational and consistent policy of doing so (e.g., across reporting periods and across investment types). Further, an entity that elects to present fair value disclosures for certain equity method investments should consider presenting these disclosures for all other similar investments. The entity should also (1) ensure that its disclosures clearly indicate that such equity method investments for which fair value is voluntarily disclosed are not recognized at fair value on a recurring basis in the statement of financial position and (2) separately identify the associated carrying amounts reported in the statement of financial position. This is especially important when an entity has equity method investments of a similar type and some but not all of those investments are recognized at fair value in the statement of financial position. For example, if an entity has multiple equity method investments, some but not all of which are measured at fair value on a recurring basis, the entity should disclose the fair value of the investments accounted for under the equity method (along with the associated carrying amounts) separately from the fair value of the investments that are recorded at fair value on a recurring basis.

The application of the disclosure requirements in ASC 820 and ASC 825 to equity method investments is further discussed below.

2.3.2.2.4.1 ASC 820 Disclosures

The guidance in ASC 820-10-15-1 applies when another Codification topic requires or permits “fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements).” Since ASC 825 permits disclosure of the fair value of investments accounted for under the equity method, an entity can also provide ASC 820 disclosures for such investments. (See Section 2.1.3 for additional guidance on applying the provisions of ASC 820 to ASC 825 disclosures.) An entity that chooses to disclose the fair value of an equity method investment may disclose the following information related to the fair value measurement (see ASC 820-10-50-2E):

The valuation’s level in the fair value hierarchy.
A description of the valuation technique and inputs used in the fair value measurement.

2.3.2.2.4.2 ASC 825 Disclosures

ASC 825-10-50-8(g) exempts entities from the fair value disclosure requirements related to “investments accounted for under the equity method” because ASC 323-10-50-3(b) already requires disclosure of the quoted market price of such investments when it is available. Paragraph 75 of the Background Information and Basis for Conclusions of FASB Statement 107 (superseded) addressed this issue, stating that the “incremental benefits of estimating fair value for unquoted investments accounted for under the equity method do not outweigh the related costs” of determining those fair values. However, ASC 825 does not prohibit an entity from disclosing the fair value of an investment accounted for under the equity method (i.e., from providing the disclosures discussed in ASC 825-10-50-10).

2.3.2.2.5 Investments of Feeder Funds

Many investment companies adopt complex capital structures to increase pricing flexibility as well as access to alternative distribution channels for their shares. Master-feeder structures permit distribution of a common investment vehicle (1) through different channels, (2) with different distribution charges to the shareholder, or (3) both. In such structures, the investment companies that perform the investment management function are often separate from those that perform the distribution function. Feeder investment companies have similar investment objectives but different distribution channels for their shares (such as retail or institutional customers) and invest substantially all of their assets in another investment company, known as the master fund. Investment management functions are conducted by the master fund, whereas distribution, shareholder-servicing, and transfer agent functions are conducted by the feeder funds.

ASC 946-235-50-3 specifies the information a feeder fund is required to include in its financial statement notes. A feeder fund’s stand-alone financial statements generally do not have to include ASC 820 fair value disclosures, including fair value hierarchy classification and presentation of the rollforward of Level 3 assets, provided that the feeder fund invests solely in the master fund and has no other direct investments. Registered investment companies that have entered into master-feeder arrangements (as defined by the SEC)43 must provide the master fund’s financial statements, along with those of each feeder fund, in accordance with SEC requirements.44 Nonregistered investment companies should attach the financial statements of the master fund to those of the feeder fund. Therefore, as long as the feeder fund’s disclosures refer to the fair value disclosures in the master fund’s provided or attached financial statements, a feeder fund would not have to comply with ASC 820’s disclosure requirements. However, in some circumstances, a feeder fund maintains direct investments in addition to its investment in the master fund (e.g., an interest rate swap). In such cases, the feeder fund would be required to include in its financial statements the appropriate ASC 820 disclosures for those direct investments.

2.3.3 Collateralized Financing Entities

2.3.3.1 Measurement

ASC 820-10-15-3(ee) contains a practicability exception related to the initial and subsequent measurement of “[f]inancial assets or financial liabilities of a consolidated [VIE] that is a collateralized financing entity when the financial assets or financial liabilities are measured using the measurement alternative in paragraphs 810-10-30-10 through 30-15 and 810-10-35-6 through 35-8.” When a CFE meets the scope requirements in ASC 810-10-15-17D and this measurement alternative is elected, the reporting 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. The fair value measurement guidance in ASC 820 applies to the more observable of the fair value of the financial assets or the fair value of the financial liabilities. See Section 8.1.2 for further discussion of this practicability exception.

2.3.3.2 Disclosure

ASC 810-10-50-20 through 50-22 address the disclosures an entity is required to provide when the measurement alternative in ASC 810-10-30-10 through 30-15 and ASC 810-10-35-6 through 35-8 is applied to a CFE. For instance, ASC 810-10-50-20 indicates that the entity “shall disclose the information required by Topic 820 on fair value measurement and Topic 825 on financial instruments for the financial assets and the financial liabilities of the consolidated collateralized financing entity.” Further, ASC 810-10-50-21 states that “[f]or the less observable of the fair value of the financial assets and the fair value of the financial liabilities of the collateralized financing entity that is measured in accordance with the measurement alternative in paragraphs 810-10-30-10 through 30-15 and 810-10-35-6 through 35-8, a reporting entity shall disclose that the amount was measured on the basis of the more observable of the fair value of the financial liabilities and the fair value of the financial assets.” See Section A.18 for further discussion of the disclosures an entity is required to provide when applying this practicability exception.

2.3.4 Guarantees

2.3.4.1 Measurement

The objective of initially measuring a guarantee liability under ASC 460-10 is to determine the fair value of the guarantee at its inception. However, ASC 460-10-30-2(a) and (b) state:

If a guarantee is issued in a standalone arm’s-length transaction with an unrelated party, the liability recognized at the inception of the guarantee shall be the premium received or receivable by the guarantor as a practical expedient.
If a guarantee is issued as part of a transaction with multiple elements with an unrelated party (such as in conjunction with selling an asset), the liability recognized at the inception of the guarantee should be an estimate of the guarantee’s fair value. In that circumstance, a guarantor shall consider what premium would be required by the guarantor to issue the same guarantee in a standalone arm’s-length transaction with an unrelated party as a practical expedient.

The recognition of a guarantee liability on the basis of the premium received or receivable represents a practical expedient because this amount reflects an entry price rather than an exit price. This practical expedient is acknowledged in ASC 820-10-15-3(a)(1).

Read literally, ASC 460-10-30-2(a) and (b) require an entity to initially recognize the guarantee liability on the basis of an entry price. However, in discussions, the FASB staff has indicated that the use of the entry price in the initial measurement of a guarantee liability is only intended to be an accommodation. Therefore, although the language may imply that an entity is required to perform initial recognition on the basis of the transaction price, the entity is not precluded from initially recognizing the guarantee liability at fair value in such circumstances (i.e., on the basis of an exit price).

See Section 10.10.9 for further discussion of the fair value measurement of guarantees.

2.3.4.2 Disclosure

ASC 820’s disclosure requirements do not apply to fair value measurements at initial recognition. Therefore, the initial measurement of the liability for a guarantee obligation is not subject to these requirements. However, the fair value disclosures required by ASC 825-10-50-10 through 50-15 would be applicable. In addition, the disclosure requirements in ASC 460-10 apply to guarantees. See Section A.12 for further discussion of fair value disclosures related to guarantees.

2.3.5 Share-Based Payments

2.3.5.1 Measurement

As discussed in ASC 820-10-15-2, the guidance in ASC 820 does not apply to measurements of share- based payment awards in accordance with ASC 718. Measurements under ASC 718 are “fair-value-based” measurements. Valuation techniques and certain assumptions used in a fair-value-based measurement in accordance with ASC 718 may be consistent with those used in a fair value measurement under ASC 820. However, a fair-value-based measurement excludes the impact of certain conditions, restrictions, and contingencies that a fair value measurement under ASC 820 would include (e.g., service conditions, performance conditions and other restrictions that apply during the vesting period, reload features, and contingent features that may require the employee to return equity instruments). Under ASC 718, the effect of such items is taken into account not in the fair-value-based measurement but through the recognition of compensation cost only for awards for which the requisite service (or goods or services) is received.

2.3.5.2 Disclosure

Since a measurement of a share-based payment award is not subject to ASC 820, the disclosure requirements of ASC 820 do not apply to share-based payments, regardless of whether such payments are granted to employees or nonemployees. Rather, fair-value-based measurements of share-based payments are subject to the disclosure requirements of ASC 718.

2.3.6 Assets Acquired and Liabilities Assumed in a Business Combination

2.3.6.1 Measurement

ASC 805-20-30-1 states that the acquirer in a business combination must measure the “identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their acquisition-date fair values.” However, ASC 820-10-15-3(e) notes that ASC 805-20-30-10 through 30-26 cite the following exceptions to this measurement principle:

Income taxes — ASC 805-740-30-1 states that “[a]n acquirer shall measure a deferred tax asset or deferred tax liability arising from the assets acquired and liabilities assumed in a business combination in accordance with Subtopic 740-10.”
Employee benefits — Under ASC 805-20-30-14 and 30-15, “[t]he acquirer shall measure a liability (or asset, if any) related to the acquiree’s employee benefit arrangements in accordance with other GAAP.” For example, an acquirer recognizes “an asset or a liability [equal to] the funded status of a single-employer defined benefit pension or postretirement plan” in accordance with ASC 805-20-25-23, ASC 805-20-25-25, and ASC 805-20-30-15. ASC 805-20-30-17 provides measurement-related guidance that applies to other employee benefit arrangements.
Indemnification assets — The acquirer measures an indemnification asset on the same basis as the indemnified item. For example, if the seller in a business combination contractually indemnifies the acquirer for the outcome of an uncertain tax position, the indemnification asset would be measured on the same basis as the uncertain tax position (provided that there are no contractual limitations or collectibility is not in doubt). Also see the “Income taxes” bullet above. If the indemnified item is not measured at fair value, the indemnification asset would also not be measured at fair value.
Reacquired rights — ASC 805-20-30-20 indicates that the acquirer measures the value of a reacquired right “on the basis of the remaining contractual term of the related contract regardless of whether market participants would consider potential contractual renewals in determining its fair value.”
Share-based payment awards — Under ASC 805-20-30-21, the acquirer measures “a liability or an equity instrument related to the replacement of an acquiree’s share-based payment awards with share-based payment awards of the acquirer in accordance with the method in Topic 718.”
Assets HFS — Under ASC 805-20-30-22, the acquirer measures “an acquired long-lived asset (or disposal group) that is classified as held for sale at the acquisition date in accordance with Subtopic 360-10, at fair value less cost to sell.” The fair value measurement would be performed on the basis of the measurement guidance in ASC 820.
Certain assets and liabilities arising from contingencies — ASC 805-20-30-23 indicates that if the fair value of an asset or liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, the asset or liability should be measured in accordance with ASC 450.
Lease assets and lease liabilities — ASC 805-20-30-24 and 30-25 contain specific guidance on measuring lease assets and lease liabilities when the acquiree is a lessee or lessor. Upon an entity’s adoption of ASU 2016-13, an additional exception to the measurement principle in ASC 805-20-30-1 is also applicable. An entity that uses this exception applies the guidance in ASC 805-20-30-26 to recognize purchased financial assets with credit deterioration (including beneficial interests meeting the conditions in paragraph 325-40-30-1A) in accordance with Section 326-20-30 for financial instruments measured at amortized cost or Section 326-30-30 for available-for-sale debt securities.”

See Section 10.10.13 and Deloitte’s Roadmap Business Combinations for further discussion of the initial recognition of assets acquired and liabilities assumed in a business combination.

2.3.6.2 Disclosure

Except for assets HFS, assets acquired and liabilities assumed that are within the scope of the above exceptions would not be measured at fair value; the fair value disclosure requirements in ASC 820 thus would not apply to such assets and liabilities. While assets HFS are measured on a fair value basis under ASC 820 (i.e., fair value less costs to sell), ASC 820’s disclosure requirements do not apply to fair value measurements at initial recognition. Rather, ASC 805 addresses the disclosures required for the assets acquired and liabilities assumed listed in Section 2.3.6.1 (see Section A.17).

2.3.7 Impairment Testing of Long-Lived Assets

2.3.7.1 Measurement

2.3.7.1.1 Long-Lived Assets Classified as Held and Used

When evaluating a long-lived asset (asset group) classified as held and used for impairment under ASC 360-10-35-16 through 35-36, an entity first performs a recoverability test by using undiscounted cash flows. If the long-lived asset (asset group) is not recoverable, the entity records an impairment loss, which is measured as the difference between the carrying amount and fair value of the long-lived asset (asset group). The fair value measurement guidance in ASC 820 applies to the measurement of the impairment loss. However, an impairment loss is not recognized if the carrying amount of the long-lived asset (asset group) is recoverable on the basis of the undiscounted cash flows expected to result from the asset’s use. The recoverability test is based on management’s intended use of the assets. If a long-lived asset (asset group) fails the recoverability test, the impairment loss is measured on the basis of market-participant assumptions in accordance with ASC 820.

When determining the fair value of a long-lived asset (asset group), entities must consider the highest and best use of the nonfinancial asset(s) from a market-participant perspective. ASC 820-10-35-10C states that the “[h]ighest and best use is determined from the perspective of market participants, even if the reporting entity intends a different use,” but clarifies that “a reporting entity’s current use of a nonfinancial asset is presumed to be its highest and best use unless market or other factors suggest that a different use by market participants would maximize the value of the asset.” ASC 820 does not require entities to use a specific valuation technique when measuring the fair value of an asset or liability. However, ASC 360-10-35-36 indicates that for long-lived assets (asset groups) with uncertain cash flows, an expected-present-value technique is often the appropriate technique for measuring the fair value of long-lived assets. Simply discounting the cash flow projections used in the recoverability analysis may not be appropriate under ASC 820 because management may use assumptions in the recoverability analysis that are not market-participant assumptions. This is particularly the case when a market participant’s highest and best use is different from management’s intended use. To reflect market-participant assumptions, entities may need to adjust internally developed assumptions regarding their intended use of the asset when such assumptions are included in the projection of undiscounted cash flows and differ from market-participant assumptions.

2.3.7.1.2 Long-Lived Assets Classified as HFS

A long-lived asset (asset group) classified as HFS is measured at the lower of cost or fair value less costs to sell in accordance with ASC 360-10-35-37 through 35-45. The fair value measurement is subject to the measurement guidance in ASC 820.

2.3.7.1.3 Long-Lived Assets to Be Exchanged or to Be Distributed to Owners in a Spin-Off

ASC 360-10-40-4 addresses the accounting for long-lived assets (disposal groups) to be exchanged or distributed to owners in a spin-off. ASC 360-10-40-4 states, in part, that “[i]n addition to any impairment losses required to be recognized while the asset is classified as held and used, an impairment loss, if any, shall be recognized when the asset is disposed of if the carrying amount of the asset (disposal group) exceeds its fair value.” ASC 820 applies to the determination of fair value for this purpose.

2.3.7.2 Disclosure

The recognition of an impairment loss on a long-lived asset (asset group or disposal group) represents a nonrecurring fair value measurement that is subject to ASC 820’s disclosure requirements pertaining to nonrecurring fair value measurements. In addition, the disclosures required by ASC 360-10-50 include certain disclosures regarding fair value measurements. The disclosures in ASC 825-10-50-10 through 50-15 do not apply to long-lived assets. See Section A.9 for more information about the fair value disclosure requirements of ASC 360.

2.3.8 Leases

2.3.8.1 Measurement

With one exception, ASC 820’s measurement guidance applies to any fair value measurement under ASC 842, including a fair value measurement used to determine lease classification.45 ASC 842 contains guidance on fair value estimates required under ASC 842 (see also Section 10.10.15 and Deloitte’s Roadmap Leases). It should also be noted, however, that ASC 805-20 contains specific guidance on the acquirer’s measurement of lease assets and lease liabilities in a business combination (see Section 2.3.6.1).

2.3.8.2 Disclosure

ASC 820’s disclosure requirements apply only to a nonrecurring fair value measurement determined in accordance with ASC 820 in connection with a lease arrangement. ASC 825-10-50-8(d) exempts lease contracts (other than a contingent obligation associated with a canceled lease and a guarantee of a third-party lease obligation, which are not lease contracts) from the fair value disclosure requirements in ASC 825-10-50-10 through 50-15. ASC 842 prescribes other lease-related disclosure requirements.

2.3.9 Asset Retirement Obligations

2.3.9.1 Measurement

Generally, ASC 820 applies to the initial measurement of an ARO. ASC 410-20-25-4 states that an entity should recognize the liability at its fair value “in the period in which it is incurred if a reasonable estimate of fair value can be made.” In addition, ASC 410-20-30-1 states, in part:

An expected present value technique will usually be the only appropriate technique with which to estimate the fair value of a liability for an asset retirement obligation. An entity, when using that technique, shall discount the expected cash flows using a credit-adjusted risk-free rate. Thus, the effect of an entity’s credit standing is reflected in the discount rate rather than in the expected cash flows.

Further, ASC 410-20-25-4 states, in part, that “[i]f a reasonable estimate of fair value cannot be made in the period the [ARO] is incurred, the liability shall be recognized when a reasonable estimate of fair value can be made.” This practical expedient, which provides for a delay in the recognition of the ARO until its fair value is reasonably estimable, is also addressed in ASC 820-10-15-3(c).

The subsequent measurement of an ARO liability is subject to the guidance in ASC 410-20. ASC 410-20-35-3 through 35-8 provide guidance on recognizing the period-to-period changes in the liability as a result of (1) the passage of time and (2) revisions to the timing or amount of the estimated original undiscounted cash flows. This guidance can be summarized as follows.

Passage of time — To measure changes in the liability related to the passage of time, an entity should apply an “interest method of allocation to the . . . liability at the beginning of the period” by using the “credit-adjusted risk-free rate that existed when the liability . . . was initially measured.”
Revisions to timing or amount of estimated undiscounted cash flows — Upward revisions that create an incremental change in the undiscounted estimated cash flows should be discounted by using the current credit-adjusted risk-free rate, which adds an additional “layer” to the ARO liability. Downward revisions in estimated undiscounted cash flows are “discounted using the credit-adjusted risk-free rate that existed when the original liability was recognized.”

The changes resulting from the passage of time and revisions to estimated undiscounted cash flows are then incorporated into a remeasurement of the ARO. Although the fair value measurement concepts in ASC 820 apply to upward revisions to the ARO, the incremental layers are not separate liabilities. Therefore, subsequent measurements of the entire ARO are not fair value measurements.

See Section 10.10.7 for more information about the fair value measurement of AROs.

2.3.9.2 Disclosure

Because ASC 820’s disclosure requirements do not apply to fair value measurements at initial recognition and the subsequent measurement of an ARO is not a fair value measurement of the entire obligation, ASC 820’s disclosure requirements do not apply to AROs. However, ASC 410-20-50-2 states that “[i]f the fair value of an asset retirement obligation cannot be reasonably estimated, that fact and the reasons therefor shall be disclosed.” ASC 410-20-55-57 through 55-62 give examples of situations in which sufficient information is not available at the time the liability is incurred, as discussed in ASC 410-20-25-4. ASC 410-20-50 does not contain any disclosure requirements specific to fair value measurements of AROs (see Section A.10). The disclosures required by ASC 825-10-50-10 through 50-15 apply only to financial liabilities.

2.3.10 Life Insurance Contracts

2.3.10.1 Measurement

The measurement of a company-owned life insurance contract at cash surrender value (CSV) under ASC 325-30-35-2 does not represent a fair value measurement under ASC 820. Rather, CSV is a settlement value, not an amount that a market participant would pay to purchase the insurance contract from the policyholder. Company-owned life insurance contracts that are measured at fair value would, however, be subject to the measurement guidance in ASC 820.

ASC 325-30 discusses the accounting when a third-party investor purchases the future payment streams of life insurance policies from the policies’ owners (referred to as life settlement contracts). Investors account for life settlement contracts by using either the investment method or fair value method. When using the investment method, an investor may write an investment down to fair value if it is impaired (see ASC 325-30-35-11). When an investment is impaired under the investment method or when the fair value method is used, the measurement guidance in ASC 820 applies.

Note that the above guidance related to CSV measurements under ASC 325-30 does not apply to sponsors of pension and other postretirement benefit plans. Under ASC 715-30-35-60 and ASC 715-60-35-120, CSV is presumed to be fair value if the life insurance contract is a pension plan asset or other postretirement plan asset, respectively.

In the financial statements of a pension or other postretirement benefit plan (under ASC 960, ASC 962, and ASC 965), company-owned life insurance contracts are “[measured] in the same manner as specified in the annual report filed by the plan with certain governmental agencies pursuant to the Employee Retirement Income Security Act; that is, either at fair value or at amounts determined by the insurance entity (contract value).” See ASC 960-325-35-3, ASC 962-325-35-6, and ASC 965-325-35-3 for more information.

2.3.10.2 Disclosure

Company-owned life insurance contracts recognized at CSV are not subject to ASC 820’s disclosure requirements since such contracts are not carried at fair value. Company-owned life insurance contracts that are measured at fair value are subject to the disclosure requirements in ASC 820.

Life settlement contracts that are recognized at fair value are subject to ASC 820’s disclosure requirements related to recurring fair value measurements. Life settlement contracts that are not recognized at fair value would be subject to ASC 820’s disclosure requirements related to nonrecurring fair value measurements only in periods in which such contracts have been impaired and written down to their fair value.

Although CSV is considered fair value for pension reporting purposes, the disclosure requirements of ASC 820 do not apply to pension and other postretirement benefit plan assets within the plan sponsor’s financial statements.46

ASC 825-10-50-8(c) exempts insurance contracts from the disclosure requirements in ASC 825-10-50-10 through 50-15.

2.3.11 Hedged Item in a Fair Value Hedge

2.3.11.1 Measurement

ASC 815-20-25-11 states that “[a]n entity may designate a derivative instrument as hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof (hedged item) that is attributable to a particular risk” (emphasis added). The carrying value of the hedged item in a fair value hedge will generally not equal its fair value for two reasons. First, in a fair value hedge, an entity attempts to hedge the change in fair value of an asset or liability. Second, in a fair value hedge, an entity typically only hedges the change in fair value due to a particular risk (or risks), thereby excluding factors that would be included in a fair value measurement of the entire hedged item. Accordingly, the hedged item will equal fair value only if, (1) at inception of the hedging relationship, the hedged item is recorded at its fair value and (2) the entity hedges the entire change in fair value of the hedged item. These conditions are typically not met. In fact, in many cases in which the hedged item is a financial asset or liability, the entity would apply the FVO in lieu of hedge accounting.

Note that the measurement guidance in ASC 820 would always apply to the measurement of the change in fair value of the hedged item, even if the hedged item is not carried at fair value.

2.3.11.2 Disclosure

The remeasurement of the hedged item in a fair value hedge is subject to ASC 820’s disclosure requirements related to recurring fair value measurements only if the designated hedge results in recognition of the hedged item at fair value. Otherwise, only the disclosure requirements in ASC 815 and ASC 825 are applicable.

2.3.12 Nonmonetary Transactions

2.3.12.1 Measurement

ASC 845-10-30-1 states, in part, that “[i]n general, the accounting for nonmonetary transactions should be based on the fair values of the assets (or services) involved, which is the same basis as that used in monetary transactions.” When fair value is the basis of recognition for a nonmonetary transaction, the fair value measurement guidance in ASC 820 applies (i.e., the initial fair value measurement of the nonmonetary asset received should be determined in accordance with ASC 820). However, ASC 845-10-30-3 requires measurement of a nonmonetary exchange “based on the recorded amount . . . of the nonmonetary asset(s) relinquished, and not on the fair values of the exchanged assets,” if (1) the fair value is not “determinable within reasonable limits,” (2) the “transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange,” or (3) the “transaction lacks commercial substance.” These exceptions related to fair value measurements are acknowledged in ASC 820-10-15-3(c)(1). In the absence of an exception, the ASC 820 measurement guidance applies to fair value measurements recognized for nonmonetary transactions.47 See Section 10.10.16 for further discussion of the fair value measurement of nonmonetary transactions.

2.3.12.2 Disclosure

ASC 820’s disclosure requirements do not apply to a nonmonetary transaction, even if it is recognized on the basis of a fair value measurement that is calculated in accordance with ASC 820, because ASC 820’s disclosure requirements do not apply to the initial recognition of an item at fair value. ASC 845-10-50-3 contains one fair-value-related disclosure requirement applicable to nonmonetary transactions (see Section A.20).

2.3.13 Exit or Disposal Cost Obligations

2.3.13.1 Measurement

ASC 420 requires an entity to initially measure a liability for a cost associated with an exit or disposal activity at fair value in the period in which the liability is incurred, except for certain one-time termination benefits that are incurred over time, which are initially recognized as of the communication date on the basis of the fair value of the liability as of the termination date. However, ASC 420-10-25-1 states the following about measuring restructuring obligations at fair value: “In the unusual circumstance in which fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated.” See Section 10.10.8 for further discussion of the fair value measurement of exit or disposal cost obligations.

2.3.13.2 Disclosure

ASC 820’s disclosure requirements do not apply to the initial recognition of an item at fair value. However, under ASC 420-10-50-1(e), “[i]f a liability for a cost associated with [an exit or disposal] activity is not recognized because fair value cannot be reasonably estimated,” an entity is required to disclose “that fact and the reasons why.” ASC 420-10-50 does not contain any disclosure requirements that apply to fair value measurements of exit or disposal obligations.

2.3.14 Noncash Consideration in a Revenue Contract

2.3.14.1 Measurement

ASC 820-10-15-2(d) contains an exception related to applying the fair value measurement guidance in ASC 820 to “the recognition and measurement of revenue from contracts with customers in accordance with Topic 606.” ASC 606 notes that fair value is the relevant measurement attribute in the following circumstances:

The determination of the transaction price for contracts in which a customer promises a form of noncash consideration (ASC 606-10-32-21 and 32-22 and ASC 606-10-55-250).
Changes in the fair value of noncash consideration after contract inception (ASC 606-10-32-23).
Consideration that is payable to a customer and that is a payment for a distinct good or service received from the customer, which may reduce the transaction price (ASC 606-10-32-26).

ASC 606-10-32-21 states, in part, that “the transaction price for contracts in which a customer promises consideration in a form other than cash [is] the estimated fair value of the noncash consideration at contract inception (that is, the date at which the criteria in paragraph 606-10-25-1 are met).” However, as noted in ASC 820-10-15-3(f)(1), ASC 606-10-32-22 contains an exception to initial measurement at fair value for entities that cannot reasonably estimate the fair value of the noncash consideration. ASC 606-10-32-22 indicates that entities that apply this practical expedient must “measure the consideration indirectly by reference to the standalone selling price of the goods or services promised to the customer (or class of customer) in exchange for the consideration.”

ASC 606 does not define fair value. While the ASC 820 fair value measurement guidance does not explicitly apply to the measurement of noncash consideration in a revenue contract, it may be relevant for entities to consider the measurement principles in ASC 820 in such circumstances. In addition, if another Codification topic requires an entity to measure a change in the fair value of noncash consideration, and such a change has no impact on the transaction price under ASC 606, the ASC 820 fair value measurement guidance must be applied to the recognition of such fair value measurements in the absence of a specific exception in the other Codification topic or ASC 820.

2.3.14.2 Disclosure

ASC 820’s disclosure requirements do not apply to any fair value measurements under ASC 606 because (1) the initial recognition of an item at fair value is not subject to ASC 820’s disclosure requirements and (2) any fair value measurement required under ASC 606 is not within the scope of ASC 820. However, ASC 606-10-50-20 specifies that entities are required to disclose the methods, inputs, and assumptions related to the transaction price in a revenue contract with a customer. In addition, when another Codification topic requires the fair value measurement of noncash consideration and such measurement is performed in accordance with ASC 820, the measurement is subject to ASC 820’s disclosure requirements in the absence of a specific exception in the other Codification topic or ASC 820.

2.3.15 Defined Benefit Pension and Other Postretirement Plans in the Sponsor’s Financial Statements

2.3.15.1 Measurement

2.3.15.1.1 Plan Assets

Under ASC 715-30 and ASC 715-60, sponsors of defined benefit pension and other postretirement plans recognize, in the statement of financial position, the funded status of the plan by offsetting the fair value of plan assets and the benefit obligation. Because plan assets are measured at fair value as of the measurement date, the measurement guidance in ASC 820 applies.48 Sponsors with postemployment benefits accounted for under ASC 712 that apply the measurement provisions of ASC 715-30 or ASC 715-60 should also apply the measurement guidance in ASC 820.

ASC 715-30 and ASC 715-60 contain an exemption related to the requirement to subsequently measure participation rights at fair value. ASC 715-30-35-58 and ASC 715-60-35-116 state, in part:

[T]he participation right shall be measured at its fair value if the contract is such that fair value is reasonably estimable. Otherwise, the participation right shall be measured at its amortized cost (not in excess of its net realizable value), and the cost shall be amortized systematically over the expected dividend period under the contract.

2.3.15.1.2 Plan Obligations

The pension or postretirement benefit obligation under ASC 715 is not measured at fair value; rather, it is an actuarial present value calculation of estimated future benefit costs that is based on employee services rendered to date. Therefore, ASC 820 does not apply to such measurement.

2.3.15.2 Disclosure

Although ASC 820 applies to the measurement of plan assets, the disclosure requirements of ASC 820 do not apply to plan assets accounted for under ASC 715 in the sponsor’s financial statements. ASC 820-10-50-10 states that “[p]lan assets of a defined benefit pension or other postretirement plan that are accounted for in accordance with Topic 715 are not subject to the disclosure requirements [of ASC 820]. 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.” Sponsors with postemployment benefits accounted for under ASC 712 that apply the measurement provisions of ASC 715-30 or ASC 715-60 should also apply the disclosure requirements of ASC 715-20-50. The disclosure requirements in ASC 825-10-50-10 through 50-15 apply to plan assets (except for insurance contracts and FBRICs), which are generally measured at fair value. However, ASC 825-10-50-8(a) exempts benefit obligations from these disclosure requirements. Rather, benefit obligations are subject to the disclosure requirements of ASC 715. See Section A.15 for further discussion of the fair value disclosure requirements in ASC 715-20-50.

2.3.16 Financial Statements of Defined Benefit Plans, Defined Contribution Plans, and Health and Welfare Plans

2.3.16.1 Measurement

2.3.16.1.1 Plan Assets

ASC 820 applies to the fair value measurement of pension plan investments in accordance with ASC 96049 as well as to that of plan investments held within a defined contribution pension plan, which must be measured at fair value as of the reporting date in accordance with ASC 962. However, participant loans are not considered plan investments and should not be measured at fair value.50 The measurement guidance in ASC 820 further applies to investments held within health and welfare benefit plans, which must be measured at fair value in accordance with ASC 965. See Sections 10.10.19.9 and 10.10.19.10 for further discussion of fair value measurements under ASC 962 and ASC 965.

2.3.16.1.2 Plan Obligations

ASC 820 does not apply to accumulated plan benefit obligations, which are not measured at fair value; rather, such obligations are measured on the basis of an actuarial present value calculation of future benefits that are attributable to plan participants for services rendered to date in accordance with the provisions of the plan.

2.3.16.2 Disclosure

ASC 820’s disclosure requirements apply to pension plan investments that an entity must measure at fair value in accordance with ASC 960, plan investments held within a defined contribution pension plan that must be measured at fair value in accordance with ASC 962, and investments held within health and welfare benefit plans that must be measured at fair value in accordance with ASC 965. Because such plan assets must be measured at fair value as of each reporting date, the financial statements of such plans must include the recurring fair value disclosures required under ASC 820. ASC 960, ASC 962, and ASC 965 also contain specific disclosure requirements, including those related to fair value and certain references to the disclosures required by ASC 820. The disclosures in ASC 825-10-50-10 through 50-15 also apply to plan investments, except for insurance contracts and FBRICs. See Sections A.31 through A.33 for further discussion of the incremental fair-value-related disclosures required by ASC 960, ASC 962, and ASC 965.

The fair value disclosures required by ASC 820 do not apply to plan benefit obligations under ASC 960, ASC 962, and ASC 965. Furthermore, ASC 825-10-50-8(a) exempts such plan obligations from the disclosure requirements of ASC 825-10-50-10 through 50-15. In such cases, entities should look to the respective disclosure requirements of ASC 960, ASC 962, and ASC 965.

2.3.17 Deferred Compensation Obligations in Rabbi Trusts

2.3.17.1 Measurement

Many employers enter into deferred compensation arrangements that allow employees to defer some or all of their earned compensation (i.e., salary or bonus). Deferred compensation contracts that are not considered equivalent to a postretirement income or health or welfare benefit plan are generally accounted for under ASC 710 or ASC 718.

Sometimes the employer uses a “rabbi trust” to hold assets from which distributions will be made as part of a nonqualified deferred compensation plan. ASC 710 provides guidance on deferred compensation arrangements in which assets equal to compensation amounts earned by employees are placed in a rabbi trust. ASC 710-10-25-15 describes four types of such arrangements and states:

The following are the four types of deferred compensation arrangements involving rabbi trusts covered by this Subsection:

Plan A — The plan does not permit diversification and must be settled by the delivery of a fixed number of shares of employer stock.
Plan B — The plan does not permit diversification and may be settled by the delivery of cash or shares of employer stock.
Plan C — The plan permits diversification; however, the employee has not diversified (the plan may be settled in cash, shares of employer stock, or diversified assets).
Plan D — The plan permits diversification and the employee has diversified (the plan may be settled in cash, shares of employer stock, or diversified assets).

ASC 710-10-35-2 states that changes in the fair value of the deferred compensation obligation of Plan A “shall not be recognized,” and ASC 825-10-15-5(c) and (f) preclude an entity from applying the FVO to this obligation. ASC 710-10-35-3 and 35-4 state that the deferred compensation obligations of Plans B, C, and D “shall be adjusted with a corresponding charge (or credit) to compensation cost, to reflect the changes in the fair value of the amount owed to the employee.”51 ASC 710-10-45-2 further states that “[f]or Plan D only, changes in the fair value of the deferred compensation obligation shall not be recorded in other comprehensive income, even if changes in the fair value of the assets held by the rabbi trust are recorded, pursuant to Subtopic 320-10, in other comprehensive income.”

While the fair value adjustments to the deferred compensation obligations of Plans B and C must be measured in accordance with ASC 820, the deferred compensation obligation of Plan D does not need to represent a fair value measurement in accordance with ASC 820. Discussions with the FASB staff have indicated that obligations for Plan D deferred compensation arrangements, as described in ASC 710, are not fair value measurements subject to the requirements of ASC 820. The intent of the guidance was to have the obligation match the fair value of the amounts earned and assets held in the rabbi trust. This intent is consistent with the original transition guidance in EITF Issue 97-14, which states, in part, “For Plan D, the diversified assets held by the rabbi trust should be recorded at fair value at September 30, 1998 with a corresponding amount recorded as a deferred compensation liability” (emphasis added). In other words, the liability was not reported at fair value as of the transition; rather, it was set to equal the fair value of the assets held in the rabbi trust.52 Thus, the nonperformance risk associated with the obligation would not be reflected in its measurement.

Note that other deferred compensation arrangements allow participants to “invest” their earned compensation into “phantom” investments indexed to employer stock, nonemployer securities, or a combination of both; however, the employer does not purchase investments that are held separately in a trust. The amount due (i.e., the obligation) to employees in each reporting period represents deferred pay plus or minus the changes in fair value of the phantom investments. Entities with phantom deferred compensation arrangements whose employees have diversified their accounts into nonemployer securities may apply, by analogy, the Plan D accounting guidance in ASC 710 to measure the obligation.

2.3.17.2 Disclosure

For Plan A, the fair value measurement disclosures required by ASC 820 and ASC 825 do not apply, since both the employer stock held by the rabbi trust and any deferred compensation obligation are classified in equity in accordance with ASC 710-10-25-16. ASC 825-10-50-8(i) exempts equity instruments from the disclosure requirements of ASC 825-10-50-10 through 50-15.

For Plans B and C, the fair value measurement disclosures required by ASC 820 and ASC 825 do not apply to the employer stock held by the rabbi trust since those shares are classified in equity. ASC 825-10-50-8(i) exempts equity instruments from the disclosure requirements of ASC 825-10-50-10 through 50-15. The deferred compensation obligation, however, is subject to ASC 820’s disclosure requirements related to recurring fair value measurements. ASC 825-10-50-8(a) exempts the obligation from the disclosure requirements of ASC 825-10-50-10 through 50-15.

For Plan D, the fair value measurement disclosures required by ASC 820 and ASC 825 apply to the assets held by the rabbi trust in the absence of a specific exception. Because the obligations are not fair value measurements, the ASC 820 fair value disclosures are not required. ASC 825-10-50-8(a) also exempts the obligation from the disclosure requirements of ASC 825-10-50-10 through 50-15.

ASC 710 does not require entities to provide any specific disclosures about these arrangements.

2.3.18 Contributions

2.3.18.1 Measurement

ASC 720-25-30-2 states that an entity’s obligation for “[u]nconditional promises to give that are expected to be paid in less than one year may be measured at net settlement value because that amount, although not equivalent to the present value of estimated future cash flows, results in a reasonable estimate of fair value.” This provision effectively represents a practical expedient related to a fair value measurement.

ASC 958-605-25-4 states, with respect to an NFP entity’s revenue recognition, that “[a] major uncertainty about the existence of value may indicate that an item received or given should not be recognized.” The AICPA Industry Audit Guide Audits of Voluntary Health and Welfare Organizations indicates that “[b]ecause of the difficulty of placing a monetary value on donated services, and the absence of control over them, the value of these services often is not recorded as contributions and expense.” This provision represents an exception from the requirement for an NFP entity to measure contributions received at fair value in accordance with ASC 958-605-30-2. See Section 10.10.19.8 for further discussion of the fair value measurement requirements of ASC 958.

2.3.18.2 Disclosure

ASC 820’s fair value disclosure requirements do not apply to the measurements referred to in Section 2.3.18.1 because these requirements do not apply to initial measurements. ASC 720 does not have any specific disclosure requirements for unconditional promises to give. Further, ASC 958 also does not have any specific disclosure requirements related to situations in which a contribution received is not recognized as a result of a major uncertainty. However, entities may find that the disclosure in ASC 958-605-50-2 is relevant by analogy. ASC 958 does contain other fair-value-related disclosure requirements (see Section A.30).

Footnotes

ASC 825-10-45-5 through 45-7 address the requirement to present separately, in OCI, the portion of the total change in fair value of a liability that results from a change in the instrument-specific credit risk.

Certain CDs (e.g., brokered CDs) may meet the definition of a security and therefore may be within the scope of ASC 320. Accordingly, an entity must evaluate the specific terms of a CD.

See Section 12.5.3.2 for discussion of the disclosures that an entity must provide under ASC 323 when electing the FVO for an investment that would otherwise be accounted for under the equity method.

The AICPA Audit and Accounting Guide Investment Companies defines a master-feeder arrangement as “one in which a registered investment company that invests in a single investment vehicle.” Master-feeder structures are specifically permitted by Section 12(d)(1)(E)(ii) of the Investment Company Act of 1940.

See the SEC’s December 30, 1998, “Annual Industry Comment Letter From the Division of Investment Management.”

ASU 2019-01 added ASC 842-30-55-17A to require lessors that are not manufacturers or dealers to use the cost of the underlying asset as the asset’s fair value at lease commencement. This cost would reflect any applicable volume or trade discounts as well as costs related to acquiring the asset, including sales taxes and delivery charges. ASC 842-30-55-17A states, in part, “However, if there has been a significant lapse of time between the acquisition of the underlying asset and lease commencement, the definition of fair value [in ASC 820] shall be applied.” As a result of the amendments made by ASU 2019-01, the guidance on this topic in ASC 842 is similar to that in ASC 840. Moreover, ASC 842-10-55-3 and ASC 842-10-55-13 address considerations related to how a lease should be classified when it is not practical to determine the fair value of the underlying asset.

Although a plan sponsor’s disclosures about the fair value of pension and other postretirement benefit plan assets are not within the scope of ASC 820, ASC 715-20-50 contains similar applicable disclosure requirements.

ASC 845-10-30-15 and 30-16 address the types of purchases and sales of inventory with the same counterparty that are measured at fair value.

ASC 715-30-35-50 indicates that the fair value of an investment should reflect “brokerage commissions and other costs normally incurred in a sale if those costs are significant (similar to fair value less cost to sell).” See Section 10.10.11 for further discussion of the fair value measurement of assets in a defined benefit pension or other postretirement plan.

ASC 960-325-35-2 indicates that “[i]f significant, the fair value of an investment shall be reduced by brokerage commissions and other costs normally incurred in a sale (similar to fair value less cost to sell).”

In accordance with ASC 962-310-35-2, “participant loans [are] measured at their unpaid principal balance plus any accrued but unpaid interest.”

For Plans A, B, and C, the employer stock held by the rabbi trust is classified as equity in a manner similar to the accounting for treasury stock (see ASC 710-10-25-16 and 25-17). For Plan D, assets held by the rabbi trust are accounted for in accordance with other Codification topics (e.g., ASC 320 or ASC 321) (see ASC 710-10-25-18).

On the basis of inquiries with the FASB staff, we believe that ASC 815 did not change the Plan D accounting guidance in ASC 710; therefore, deferred compensation arrangements in which an entity applies the Plan D accounting guidance in ASC 710 are not within the scope of ASC 815.

Confidential and Proprietary — for Use Solely by Authorized Personnel

This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.