Handbook: Fair value measurement

We address frequently asked questions about applying the fair value measurement and disclosure guidance, highlighting the differences between US GAAP and IFRS Accounting Standards. This latest edition has been updated for recent standard-setting and practice developments, and evolving interpretations.

Applicability

• ASC 820 and IFRS 13
• All companies whose financial statements include fair value estimates, either in measuring the carrying amount of assets and/or liabilities or in note disclosures. 
  

Measuring fair value in uncertain times

Even at the best of times, measuring fair value can require significant judgment and estimation. It is even more difficult now due to volatile financial markets and significant economic uncertainty resulting from geopolitical events, and rising inflation and interest rates. Although there has been much focus on the economic impact of these trends and events, the accounting impacts – including on the measurement of fair value – cannot be overlooked. In addition, there is increasing interest in how climate risk affects fair value.

All of these factors place increased pressure on companies as they exercise their judgment and determine the key assumptions underpinning fair value measurements. Companies should pay particular attention to their disclosures about those key judgments and assumptions so that users of financial statements can understand the impact of these factors on a company’s fair value measurements.

On the standard-setting front, the FASB has issued a new standard clarifying that contractual sale restrictions are not considered in measuring the fair value of equity securities. While the standard will change practice for certain companies, the effective dates are a few years out. Looking forward, the FASB is pursuing a project on the accounting for certain cryptocurrency assets, and has decided to require fair value measurement for in-scope assets (e.g. Bitcoin).

We are pleased to share our insight and practical guidance in this edition of our fair value measurement handbook. This publication will help you apply the fair value measurement principles of ASC 820 and IFRS 13, and understand the key differences between US GAAP and IFRS Accounting Standards. 

This edition has been updated for:

• Recent standard-setting developments, including ASU 2022-03, Fair value measurement of equity securities subject to contractual sale restrictions, and the FASB project on the accounting for and disclosure of crypto assets.
  
• Other practice developments and evolving interpretations.

Report contents

• Scope and overview
• The item being measured and the unit of account
• Market participants
• Principal, most advantageous and inactive markets
• Valuation approaches and techniques, and inputs to valuation techniques
• Fair value hierarchy
• Highest and best use
• Liabilities and own equity instruments
• The portfolio measurement exception
• Disclosures
• Application issues

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