Fair value measurement

Fair value accounting continues to be a topic of significant interest, with the focus shifting to how management and auditors support valuations.

Video perspectives

The idea of the fair value hierarchy is twofold: 1) valuation, to maximize use of the most observable inputs, and for 2) disclosure, to increase consistency and comparability in reporting fair values. Hear PwC's Maria Constantinou discuss the basics of the fair value hierarchy, some thoughts on where you apply judgement, and examples in each level.


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Fair value hierarchy

Key developments in accounting for fair value

  • The FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) in May 2015 that eliminates the requirement to include investments in the fair value hierarchy table whose fair values are measured at net asset value (NAV) using the practical expedient.
  • In 2017, the PCAOB released a proposal on auditing estimates and fair values, and a separate proposal on the use of specialists.
  • Also in 2017, the AICPA issued a proposed framework for the valuation of financial instruments and related credential.
  • For some investments, NAV is fair value, not a practical expedient. In those cases, the investments must still be included in the fair value hierarchy table.
  • The guidance is effective in 2017 for calendar year-end nonpublic entities. Public business entities were required to adopt the guidance in 2016.
  • The new guidance must be applied retrospectively to all periods presented. Additionally, disclosure of the nature of and reason for the change in accounting is required.

Why it's important

  • This guidance removes the diversity in practice that currently exists by requiring the observability of the inputs to be the only criterion permitted for categorizing investments in the fair value hierarchy.

Contact us

Heather Horn
US Strategic Thought Leader, National Professional Services Group, PwC US

David Schmid
IFRS & US Standard Setting Leader, National Professional Services Group, PwC US

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