Fair value accounting continues to be a topic of significant interest and debate. With unprecedented market events, turmoil in the credit markets and a severe downturn in the global economy in recent years, discussion of fair value has intensified among the preparers and users of financial information. This discussion has made clear the need for consistent fair value measurements in a global market. To that end the FASB and IASB issued Accounting Standard Update 2011-04 and IFRS 13 which create a global framework for applying consistent fair value measurements. The FASB’s new standard maintains many of the existing elements of fair value but provides for changes in several key areas that may result in substantial changes to practice. Such changes include how and when the valuation premise of highest and best use applies, the application of premiums and discounts, as well as new required disclosures. PwC has updated this guide to incorporate the changes from ASU 2011-04.
Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820), the focus of this guide, is a principles-based standard that, with few exceptions, impacts all fair value measurements in a reporting entity’s balance sheet. In this guide, we describe the key concepts and requirements of ASC 820 and include specific discussion of the impact of the fair value measurement requirements in significant accounting areas such as investments, impairments, and business combinations. The purpose of this guide is to provide an overall framework for the application of fair value measurements; to highlight key questions and answers; and to offer our perspectives throughout, based on our analysis of the guidance and experience in applying it.
While this guide is intended to clarify the fundamental principles of fair value measurements and to highlight key points that should be considered when determining the fair value of balance sheet items, it is not a substitute for thorough analysis of the facts and circumstances surrounding specific fair value measurements, nor should it be read in place of the relevant accounting literature. Nonetheless, we trust that you will find in these pages the information and insights you need to work with greater confidence and certainty when applying fair value measurements.