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.19 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.18).
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.21).
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.16 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.32 through A.34
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.31).
Footnotes
40
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.
41
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.
42
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.
43
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.
44
See the SEC’s December 30, 1998,
“Annual Industry Comment Letter From
the Division of Investment
Management.”
45
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.
46
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.
47
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.
48
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.
49
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).”
50
In accordance with ASC 962-310-35-2,
“participant loans [are] measured at their unpaid principal
balance plus any accrued but unpaid interest.”
51
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).
52
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.