5.1 Introduction

As discussed in Chapter 4, the unit of account is the grouping of assets and liabilities that are being measured for financial reporting purposes. The unit of account is generally determined in accordance with the guidance in Codification topics other than ASC 820 and is related to the level of aggregation or disaggregation for recording assets and liabilities.

The unit of valuation (also sometimes referred to as the unit of measurement) is the grouping of assets, liabilities, or equity instruments that are being measured for valuation purposes. The unit of valuation may differ from the unit of account depending on the asset, liability, or equity instrument subject to the fair value measurement. Other Codification topics will generally dictate the unit of account, whereas the unit of valuation is generally addressed in ASC 820. For example, the unit of valuation for nonfinancial assets (other than nonfinancial derivative assets) is based on an asset’s highest and best use, which may be on a stand-alone basis or in combination with other assets or other assets and liabilities. An entity may also have the option of grouping certain financial assets, financial liabilities, and nonfinancial items accounted for as derivatives under ASC 815, or a combination of those items, and the portfolio’s fair value may be measured on the basis of its net risk position. In this case, the portfolio is the unit of valuation (see Section 5.3).