10222, 1127 AM1122U.S. CPE Courses Offered820

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U.S.: CPE Courses Offered
820 Fair Value Measurement
CPE Courses Offered
Fair Value Measurements
Fair Value Option for Financial Instruments
https://www.cchcpelink.com/self-study/fair-value-
measurements-deloitte/20000
https://www.cchcpelink.com/self-study/fair-value-option-for-
financial-instruments/20014
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Summary of IAS/IFRS and U.S. GAAP
820 Fair Value Measurement
Summary of IAS/IFRS and U.S. GAAP
As a result of the issuance of IFRS 13, differences between U.S.
GAAP and IFRSs on fair value measurement

have narrowed so they are very similar. However, certain
differences remain. For a discussion of these
differences, see the “10.1. Other Matters –Fair Value
ublication Comparison
between U.S. GAAP and International Financial Reporting
Standards. The following summarizes the significant
differences between Topic 820 and IFRS 13. The information is
derived primarily from the Summary section
of ASU No. 2011-04
of Conclusions in IFRS 13.
IAS/IFRS IFRS 13 Fair Value Measurement defines fair value,
establishes a framework for measuring fair value, and
requires disclosure about fair value measurements. The fair
value measurement guidance applies to other
International Accounting Standards and International Financial
Reporting Standards (collectively IFRSs) that
require or permit fair value measurement (both initial and
subsequent measurement) or disclosure about fair
value measurements (with certain exceptions).
consistent definition of fair value and how entities should
measure fair value when required to or have elected to use fair
value for recognition or disclosure purposes.

Topic 820 Fair Value Measurement defines fair value,
accounting guidance that requires or permits fair value
measurement (both initial and subsequent
measurement) or disclosure about fair value measurements (with
certain exceptions).
Summary Discussion
Different assets, liabilities, and equity
instruments are measured at fair
value.
The Boards separately discussed the scope of their respective
fair value
measurement standards because of the differences between U.S.
GAAP and IFRSs
in the measurement bases specified in other standards for both
initial recognition
and subsequent measurement. [Topic 820 paragraph BC14; IFRS
13 paragraph
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There are different accounting
requirements for measuring the fair
value of investments in investment
companies.
Topic 946, Financial Services—Investment C
requires an investment
company to recognize its underlying investments at fair value at
each reporting
period. Topic 820 provides a practical expedient that permits an
entity with an
investment in an investment company to use as a measure of fair
value in specific
circumstances the reported net asset value without adjustment.
IFRS 10
company to
consolidate its controlled underlying investments. Because
IFRSs do not have
accounting requirements that are specific to investment
companies, the IASB
decided that it would be difficult to identify the when such a
practical expedient could

be applied given the different practices for calculating net asset
values in
jurisdictions around the world. For example, investment
companies may report in
accordance with national GAAP, which may have recognition
and measurement
requirements that differ from those in IFRSs (i.e., the
underlying investments might
not be measured at fair value or they might be measured at fair
value in accordance
with national GAAP, not IFRSs). [IFRS 13 paragraph BC238(a)
There are different requirements for
measuring the fair value of a deposit
liability.
pic
942, Financial Services
—
measurement of a deposit
liability as the amount payable on demand at the reporting date.
IFRS 13 states that the fair value measurement of a financial
liability with a demand
feature (e.g., demand deposits) cannot be less than the present

value of the
amount payable on demand. [IFRS 13 paragraph BC238(b)]
There are different disclosure
requirements.
Because IFRSs generally do not allow net presentation for
derivatives, the amounts
disclosed for fair value measurements categorized within Level
3 of the fair value
hierarchy might differ. The Boards are reviewing the
presentation requirements for
offsetting financial assets and financial liabilities.
IFRSs require a quantitative sensitivity analysis for financial
instruments that are
measured at fair value and categorized within Level 3 of the fair
value hierarchy.
entities. The FASB
concluded that some of the disclosures should not be required
for nonpublic entities
because of the characteristics of the users of the financial
statements of those
entities. In contrast, the IASB's International Financial
Reporting Standard for Small
and Medium-

entities that do not have
public accountability and the disclosures about their fair value
measurements. [IFRS
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IAS/IFRS: Scope
10 Overall
Background
Some IFRSs require or permit entities to measure or disclose
the fair value of assets, liabilities or their own
equity instruments. Because those IFRSs were developed over
many years, the requirements for measuring
fair value and for disclosing information about fair value
measurements were dispersed and, in many cases,
did not articulate a clear measurement or disclosure objective.
Some of those IFRSs contained limited
guidance about how to measure fair value, whereas others
contained extensive guidance and that guidance
was not always consistent across those IFRSs that refer to fair
value. Inconsistencies in the requirements for

measuring fair value and for disclosing information about fair
value measurements contributed to diversity
in practice and reduced the comparability of information
reported in financial statements. IFRS 13 remedies
that situation. IFRS 13 is the result of work by the IASB and the
FASB to develop common requirements for
measuring fair value and for disclosing information about fair
value measurements in accordance with IFRSs
and US generally accepted accounting principles (GAAP).
Scope (IAS/IFRS)
Summary
IFRSs that require or permit fair value measurement (both
initial and subsequent measurement) or
disclosure about fair value measurements, except in specified
circumstances. IFRS 13 explains how to
measure- and disclose fair value information for financial
reporting, but it does not change the types of
assets and liabilities that are required to or are permitted to be
measured at fair value or introduce new fair
value measurements or valuation standards.

Limitations: IFRS 13 does not apply to (IFRS 13, paragraph 6
Share-based payment transactions within the scope of IFRS 2
Share-
r);
Measurements that have some similarities to fair value but are
not fair value (e.g., net realizable value
- Cost Methods-
Inventory chapter] or value in use in IAS 36 Impairment of
- Recoverability
of Carrying Amounts - General” section of the 360 Property,
Plant, and Equipment chapter]).
The disclosure requirements of IFRS 13 are not required for the
following:
Plan assets measured at fair value in accordance with IAS 19
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Retirement benefit plan investments measured at fair value in
accordance with IAS 26 Accounting and
Assets for which recoverable amount is fair value less costs of
disposal in accordance with IAS 36.
An entity that manages a group of financial assets and financial
liabilities on the basis of its net exposure to
either market risks or credit risk may apply an exception to
IFRS 13 (as an accounting policy decision) for
measuring fair value (see the “10 Overall - Application to
Financial Assets and Liabilities with Offsetting
Posit
IAS/IFRS Literature
International Financial Reporting Standards (IFRS)
- .4, Fair Value Measurement - Objective
- .8, Fair Value Measurement - Scope
– Measurement - Application
to Financial Assets and Financial
Liabilities with Offsetting Positions in Market Risks or
Counterparty Credit Risk
- .BC18, Fair Value Measurement - Basis for
Conclusions - Introduction

Conclusions - Scope
Interpretations
International Accounting/Financial Reporting Standards Guide
Part I: Overview
Chapter 3: Fair Value Measurement
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U.S.: Scope
10 Overall
Scope (U.S. GAAP)
Summary

accounting guidance that requires or permits fair value
measurement (both initial and subsequent
measurement) or disclosure about fair value measurements. It
does not:
Apply to accounting guidance that addresses share-based
payment transactions (see the 718
Compensati
section of that chapter, and the "50 Equity-Based Payments to
Non-
Equity chapter);
Eliminate the practicability exceptions to fair value
measurements (see paragraph 820-10-15-
Apply measurements that are similar to fair value but that are
not intended to measure fair value, for
example, measurements that are based on, or otherwise use,
standalone selling price, and inventory
pricing (see the “10 Overall - Cost Methods - Alternative
chapter);
Apply to accounting guidance that addresses leasing
exception does not apply to assets acquired and liabilities
assumed in a business combination or an

acquisition by a not-for-profit entity that are required to be
measured at fair value under Topic 805,
and liabilities are related to leases);
Apply to the recognition and measurement of revenue from
contracts with customers (see the 606
Apply to the recognition and measurement of gains and losses
on the derecognition of nonfinancial
assets (see the “20 Gains and Losses from the Derecognition of
Nonfinancial Assets” section of the
610 Other Income chapter).
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The disclosure requirements in paragraphs 820-10-50-1C
through 50-8 do not apply to plan assets of a
defined benefit pension or other postretirement plan that are
accounted for in accordance with Topic 715.
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.
payment transactions (including those
chapter, except for the 40 Employee Stock
Ownership Plans section of that chapter,) which is within the
scope of this chapter);
measurements (see paragraph 820-10-15-
chapter);
to the recognition and measurement of
gains and losses on the derecognition of nonfinancial assets (see
the “20 Gains and Losses from the
Derecognition of Nonfinancial Assets” section of the 610 Other

Income chapter).
Topic 820 specifies how to measure fair value and disclose fair
value information; it does not specify when
entities should measure assets and liabilities at fair value or
introduce new fair value measurements.
An entity that manages a group of financial assets and financial
liabilities on the basis of its net exposure to
either market risks or credit risk may apply an exception to
Topic 820 (as an accounting policy decision) for
measuring fair value (see the “Application to Financial Assets
[Effective after the adoption of the amendments in ASU 2016-
payment transactions (see the 718
Compensation − Stock Compensation chapter, excluding the 40
Employee Stock Ownership Plans section of
that chapter, and the "50 Equity-Based Payments to Non-
Employees" section of the 505 Equity chapter);
measurements (see paragraph 820-10-15-3);

Methods" section of the 330 Inventory chapter);
Revenue from Contracts with Customers chapter); or
Apply to the recognition and measurement of gains and losses
on the derecognition of nonfinancial
assets (see the “20 Gains and Losses from the Derecognition of
Nonfinancial Assets” section of the 610
Other Income chapter).
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section of this chapter.
See the “Investments in Certain Entities That Calculate Net
section of this chapter for a discussion of a practical expedient
available to a reporting entity to estimate the
fair value of an investment using the net asset value per share
(or its equivalent) of the investment.
U.S. GAAP Literature

SEC Staff Views
-Hing, Quality Fair Value
Measurements (December 2006)
FASB Accounting Standards Codification
820, Fair Value Measurement, 10 Overall
-1 through 05-
1D
15 Scope and Scope Exceptions
-1
Other Considerations
n Scope, paragraph 15-2
-3
That Calculate Net Asset Value
per Share (or Its Equivalent), paragraphs 15-4 through 15-5
20 Glossary
r Value
-1

-1
- Tabular Format Required, paragraph 50-10
- Illustrations -
Example 6: Restricted Assets -
Case A: Restriction on the Sale of an Equity Instruments,
paragraph 55-53
Other Guidance
AICPA Audit and Accounting Guide (AAG)
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Development Activities – Chapter 1: Valuation
Techniques Used to Measure Fair Value of In-Process Research
and Development Assets
Development Activities – Chapter 6: Valuation of
In-Process Research and Development Assets
– Chapter 1:
Concepts and Application of Financial
Accounting Standards Board Accounting Standards Codification
820

- Chapter 4:
Measuring Fair Value of a Reporting Unit
-07, Improvements to Nonemployee
Share-Based Payment Accounting
-13, Fair Value Measurement (Topic
820): Disclosure Framework – Changes to
the Disclosure Requirements for Fair Value Measurement
FASB ASU No. 2011-04, Fair Value Measurement (Topic 820)
Background Information and Basis for Conclusions
- Overall Amendments, paragraphs
BC19 through BC20
Interpretations
Derivatives and Hedging - Interpretations of U.S. GAAP
Derivatives and Hedging - Overall (815-10)
Paragraphs 815-10-35-1 through 35-3: Subsequent Measurement
- General
-10-35-1.A: Fair Value Measurement May Give Rise to
Temporary Differences

-10-35-1.B: Fair Value Measurement
Financial Assets and Liabilities - Sales, Transfers, and
Extinguishments: Interpretations of U.S.
GAAP
Transfers and Servicing — Sales of Financial Assets (860-20)
Paragraphs 860-20-30-1 through 30-4: Initial Measurement -
General
-20-30-1.A: Fair Value Measurement
Financial Instruments
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Part V: Pervasive Issues - Chapter 19: Fair Value Measurements
cope
Insights on Fair Value Measurements
Interpretations of Topic 820, “Fair Value Measurements and
Disclosures”

and the
Fair Value Option
Accounting for Compensation Arrangements
Chapter 13: Accounting for Nonemployee Share-Based Payment
Awards
-Based
Payment Awards, Improvements to
Nonemployee Share-Based Payment Award Accounting (ASU
2018-07), paragraphs 13.37 – 13.39
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IAS/IFRS: Definition of Fair Value
Definition of Fair Value (IAS/IFRS)
Summary
Fair value is defined by IFRS 13 Fair Value Measurement as
“the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date.”
Fair value is a market-based measurement and not an entity-
specific measurement. A fair value

measurement requires assumptions (including assumptions
about risk) that market participants would use.
Market approach is defined as a “valuation technique that uses
prices and other relevant information
generated by market transactions involving identical or
comparable (ie similar) assets, liabilities or a group
of assets and liabilities, such as a business (IFRS 13, Appendix
on market information and is not affected by the entity that
owns the asset or holds the liability.
Proper identification of market participants is a key concept
underlying the measurement under the market
approach (see the “10 Overall -
of this chapter).
The Fair Value Measurement Approach
The objective of a fair value measurement is to determine the
price that would be received to sell an asset or
paid to transfer a liability at the measurement date. A fair value
measurement requires an entity to
determine:
The particular asset or liability that is the subject of the
measurement, consistently with its unit of
account (see the “10 Overall -

of this chapter). Unit of account is
defined as the “level at which an asset or a liability is
aggregated or disaggregated in an IFRS for
recognition purposes (Appendix A).
For a nonfinancial asset, the valuation premise that is
appropriate for the measurement, consistently
with its highest and best use (see the “10 Overall - Application
to Non-
this chapter). (Highest and best use is the use that would
maximize the value of the non-financial
asset or the group of assets and liabilities.)
The principal (or most advantageous) market for the asset or
liability (see the 10 Overall - The
section of this chapter). The principal market is
the one with greatest volume and
activity related to the asset or liability and the most
advantageous is the amount that would be received
after considering the most advantageous transaction and
delivery costs.
The valuation technique(s) appropriate for the measurement,
considering the availability of data with
which to develop inputs that represent the assumptions that
market participants would use in pricing

the asset or liability and the level of the fair value hierarchy
within which the inputs are categorized.
(See the “10 Overall -
chapter for a discussion of
measurement methods in IFRS 13 as well as detailed guidance
on the definition the fair value hierarchy
which determines the classification of each asset and liability
measured at fair value in the levels 1, 2
and 3.)
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IAS/IFRS Literature
- .4, Fair Value Measurement - Objective
- .10, Fair Value Measurement - Measurement -
Definition of Fair Value
- Appendix A: Defined Terms
- Appendix B: Application
Guidance - The Fair Value Measurement
Approach

Conclusions - Measurement - Definition of Fair
Value
Interpretations
Part I: Overview
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U.S.: Definition of Fair Value
Definition of Fair Value (U.S. GAAP)
Summary
as “the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement
date.” Fair value is a market-based measurement and not an
entity-specific measurement. A fair value
measurement requires assumptions (including assumptions
about risk) that market participants would use.

Market approach is defined as a “valuation technique that uses
prices and other relevant information
generated by market transactions involving identical or
comparable (that is, similar) assets, liabilities or a
group of assets and liabilities, such as a business.” The
valuation of the asset is dependent on market
information and is not affected by the entity that owns the asset
or holds the liability.
Proper identification of market participants is a key concept
underlying the measurement under the market
approach (see the “10 Overall -
of this chapter).
The Fair Value Measurement Approach
The objective of a fair value measurement is to determine the
price that would be received to sell an asset or
paid to transfer a liability at the measurement date. A fair value
measurement requires an entity to
determine:
The particular asset or liability that is the subject of the
measurement, consistently with its unit of
account (see the “10 Overall - Th
of this chapter). Unit of account is
defined as the “level at which an asset or a liability is
aggregated or disaggregated in U.S. GAAP for

recognition purposes.
For a nonfinancial asset, the valuation premise that is
appropriate for the measurement, consistently
with its highest and best use (see the “10 Overall - Application
this chapter). (Highest and best use is the use that would
maximize the value of the non-financial
asset or the group of assets and liabilities.)
liability (see the 10 Overall - The
the one with greatest volume and
activity related to the asset or liability and the most
advantageous is the amount that would be received
after considering the most advantageous transaction and
delivery costs.
The valuation technique(s) appropriate for the measurement,
considering the availability of data with
which to develop inputs that represent the assumptions that
market participants would use in pricing
the asset or liability and the level of the fair value hierarchy
within which the inputs are categorized.
(See the “10 Overall - Valuation Techniq

chapter for a discussion of
guidance on the definition the fair value
hierarchy which determines the classification of each asset and
liability measured at fair value in the
levels 1, 2 and 3.)
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-1 through 05-
1D
- Definition of Fair Value,
paragraph 35-2
-
Implementation Guidance - The Fair Value
Measurement Approach, paragraphs 55-1 through 55-2
Other Guidance
-03, Codification Improvements to

Interpretations
Interpretations of Topic 820, “Fair Value Measurement”
ition and Key Concepts - Objective of Fair Value
Measurement
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IAS/IFRS: The Asset or Liability
The Asset or Liability (IAS/IFRS)
Summary
A fair value measurement is for a particular asset or liability
and should consider the characteristics of the
asset or liability (e.g., the condition and location of the asset
and any restrictions on its sale or use) if market
participants would consider those characteristics when pricing

the asset or liability at the measurement
date. The asset or liability measured at fair value might be: (a) a
standalone asset or liability (e.g., a financial
instrument or a nonfinancial asset); or (b) a group of assets, a
group of liabilities, or a group of assets and
liabilities (e.g., a reporting unit or a business) depending on the
unit of account.
The unit of account determines what is being measured by
reference to the level at which the asset or liability
is aggregated (or disaggregated) for recognition purposes. The
unit of account for the asset or liability should
be determined in accordance with the provisions of other
accounting guidance that requires or permits fair
value measurement. The unit of account is determined by the
way the asset or liability is recognized in the
financial statements. For example, this would generally be an
individual financial instrument such as a
derivative or loan and in other cases it may be a group of
related assets or liabilities such as a business or
reporting unit.
IAS/IFRS Literature
- .14, Fair Value Measurement - Measurement - The
Asset or Liability

- Unit of Account
- Illustrative Examples -
Restricted Assets
Instrument
Conclusions - Measurement - The Asset or
Liability
Interpretations
Part I: Overview
- The Asset or Liability
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U.S.: The Asset or Liability
The Asset or Liability (U.S. GAAP)

Summary
A fair value measurement is for a particular asset or liability
and should consider the characteristics of the
asset or liability (e.g., the condition and location of the asset
and any restrictions on its sale or use) if market
participants would consider those characteristics when pricing
the asset or liability at the measurement
date. The asset or liability measured at fair value might be: (a) a
standalone asset or liability (e.g., a financial
instrument or a nonfinancial asset); or (b) a group of assets, a
group of liabilities, or a group of assets and
liabilities (e.g., a reporting unit or a business) depending on the
unit of account.
The unit of account determines what is being measured by
reference to the level at which the asset or liability
is aggregated (or disaggregated) for recognition purposes. The
unit of account for the asset or liability should
be determined in accordance with the provisions of other
accounting guidance that requires or permits fair
value measurement. The unit of account is determined by the
way the asset or liability is recognized in the
financial statements. For example, this would generally be an
individual financial instrument such as a
derivative or loan and in other cases it may be a group of
related assets or liabilities such as a business or

reporting unit.
- Unit of Account
- Definition of Fair Value - The
Asset or Liability, paragraphs 35-2B
through 35-2E
- Illustrations -
Example 6: Restricted Assets,
paragraph 55-51
paragraphs 55-52 through 55-53
-
54 through 54-55
Interpretations
Fair Value Option
- The Specific Asset or Liability

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IAS/IFRS: The Transaction
The Transaction (IAS/IFRS)
Summary
measurement “assumes that the asset or
liability is exchanged in an orderly transaction between market
participants to sell the asset or transfer the
liability at the measurement date under current market
conditions.” An orderly transaction is defined as a
transaction that “assumes exposure to the market for a period
before the measurement date to allow for
marketing activities that are usual and customary for
transactions involving such assets or liabilities; it is
not a forced transaction (eg a forced liquidation or distress
sale).”
A fair value measurement assumes that the transaction takes
place in the principal market (the market with
the greatest volume and level of activity), or if none, in the
most advantageous market (the market that
maximizes the amount received to sell an asset or minimizes the

amount paid to transfer the liability) for the
asset or liability. The normal market in which the entity would
enter into a transaction is presumed to be the
principal market, or if none, the most advantageous market. The
fair value measurement of the asset or
liability is the price in the principal market (even if the price in
a different market is more advantageous).
An entity must have access to the principal (or most
advantageous) market. The principal (or most
advantageous) market for the same asset or liability might be
different for different entities (and businesses
within those entities). For example, similar assets held by
entities in different countries may have different
markets that are accessible to them, resulting in different fair
values assigned to similar assets. Therefore,
the principal (or most advantageous) market (and thus, market
participants) should be considered from the
perspective of the entity.
In the absence of an observable market, a fair value
measurement assumes that a transaction occurs on
measurement date considered from the perspective of a market
participant that holds the asset or owes the
liability. That assumed transaction sets the basis for estimating
the price to sell or to transfer the liability.

IAS/IFRS Literature
Transaction
Conclusions - Measurement - The Transaction
- .IE22, Fair Value Measurement - Illustrative
Examples - Principal (or Most Advantageous)
Market - Example 6: Level 1 Principal (or Most Advantageous)
Market
Examples – Transaction Prices and Fair Value
at Initial Recognition – Example 7 – Interest Rate Swap at
Initial Recognition
Interpretations
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International Accounti ng/Financial Reporting Standards Guide
Part I: Overview

- The Transaction
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U.S.: The Transaction
The Transaction (U.S. GAAP)
Summary
According to Topic 820 Fair Value Measure
measurement “assumes that the asset or
liability is exchanged in an orderly transaction between market
participants to sell the asset or transfer the
liability at the measurement date under current market
conditions.” An orderly transaction is a transaction
that “assumes exposure to the market for a period before the
measurement date to allow for marketing
activities that are usual and customary for transactions
involving such assets or liabilities; it is not a forced
transaction (for example, a forced liquidation or distress sale).”
A fair value measurement assumes that the transaction takes
place in the principal market (the market with
the greatest volume and level of activity), or if none, in the

most advantageous market (the market that
maximizes the amount receive to sell an asset or minimizes the
amount paid to transfer the liability) for the
asset or liability. The normal market in which the reporting
entity would enter into a transaction is presumed
to be the principal market, or if none, the most advantageous
market. The fair value measurement of the
asset or liability is the price in the principal market (even if the
price in a different market is more
advantageous).
A reporting entity must have access to the principal (or most
advantageous) market. The principal (or most
advantageous) market for the same asset or liability might be
different for different entities (and businesses
within those entities). For example, similar assets held by
entities in different countries may have different
markets that are accessible to them, resulting in different fair
values assigned to similar assets. Therefore,
the principal (or most advantageous) market (and thus, market
participants) should be considered from the
perspective of the reporting entity.
In the absence of an observable market, a fair value
measurement assumes that a transaction occurs on

measurement date considered from the perspective of a market
participant that holds the asset or owes the
liability. That assumed transaction sets the basis for estimating
the price to sell or to transfer the liability.
SEC Staff Views
(December 2009)
[Effective after the adoption of the amendments in ASU 2022-
03.]
Although a reporting entity must be able to access the market,
the reporting entity does not need to be able
to sell the particular asset or transfer the particular liability on
the measurement date to be able to measure
fair value on the basis of the price in that market. For example,
an equity security that an entity cannot sell
on the measurement date because of a contractual sale
restriction shall be measured at fair value on the
basis of the price in the principal (or most advantageous)
market. A contractual sale restriction does not
change the market in which that equity security would be sold.
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Practices for MD&A Disclosure (December
2008)
20 Glossary
Transaction, paragraphs 35-3
through 35-6C
- Illustrations -
Example 4: Level 1 Principal (or
Most Advantageous) Market, paragraphs 55-42 through 55-45A
- Illustrations -
Example 5: Transaction Prices and
Initial Fair Value at Initial Recognition - Interest Rate Swap at
Initial Recognition, paragraphs 55-

46 through 55-49
Other Guidance
820): Fair Value Measurement of Equity
Securities Subject to Contractual Sale Restrictions
through BC24
Interpretations
A. Overview and Scope of Topic 820
-17. What is the meaning of a “principal (or most
advantageous) market” and what is its
importance?
-18. How does the principal (or most advantageous) market
affect determination of fair value
and what are the implications for fair value measurement under
Topic 820?
Fair Value Option

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- Orderly Transaction
- The Principal (or Most
Advantageous) Market
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IAS/IFRS: Market Participants
Market Participants (IAS/IFRS)
Summary
Market participants are buyers and sellers in the principal (or
most advantageous) market (see the “10
Overall -
asset or liability that are:
Independent of each other (i.e., they are not related parties - see
the “10 Overall - Definition of
chapter);

Knowledgeable (i.e., sufficiently informed to make an
investment decision and are presumed to be as
knowledgeable as the reporting entity about the asset or
liability);
Able to enter into a transaction for the asset or liability; and
Willing to enter into a transaction for the asset or liability.
The fair value of the asset or liability is determined based on
the assumptions that market participants would
use in pricing the asset or liability. The entity should identify
characteristics that distinguish market
participants generally, considering factors specific to:
The asset or liability;
liability; and
Market participants with whom the entity would enter into a
transaction in that market.
IAS/IFRS Literature
- .23, Fair Value Measurement - Measurement - Market
Participants
Conclusions - Measurement - Market

Participants
Interpretations
Part I: Overview
- Market Participants and the Price
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U.S.: Market Participants
Market Participants (U.S. GAAP)
Summary
Market participants are buyers and sellers in the principal (or
most advantageous) market (see the “10
Overall -
asset or liability that are:
Independent of each other (i.e., they are not related parties - see
the “10 Overall - Definition of
Related Par
chapter);
Knowledgeable (i.e., sufficiently informed to make an

investment decision and are presumed to be as
knowledgeable as the reporting entity about the asset or
liability);
Able to enter into a transaction for the asset or liability; and
Willing to enter into a transaction for the asset or liability.
The fair value of the asset or liability is determined based on
the assumptions that market participants would
use in pricing the asset or liability. The entity should identify
characteristics that distinguish market
participants generally, considering factors specific to:
The asset or liability;
liability; and
Market participants with whom the reporting entity would enter
into a transaction in that market.
SEC Staff Views
Advantageous Market (December 2015)
ssumptions
(December 2009)
2008)

2008)
20 Glossary
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- Definition of Fair Value -
Market Participants, paragraph 35-9
Other Guidance
Interpretations
-16. What Is a Market Participant and What Is Its

Significance?
Fair Value Option
- Market Participants
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IAS/IFRS: The Price
The Price (IAS/IFRS)
Summary
fair value is “the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction in the principal (or most advantageous)
market at the measurement date under current market conditions
(i.e., an exit price) regardless of whether
that price is directly observable or estimated using another
valuation technique.”
The price should not be adjusted for transaction costs.
Transaction costs are those costs to sell an asset or

transfer a liability in the principal (or most advantageous)
market. Transaction costs are accounted for in
accordance with other guidance.
Transport costs are those costs that would be incurred to
transport an asset from its current location to its
principal (or most advantageous) market, and are not transaction
costs. The price should be adjusted for the
costs to transport the asset from its current location to that
market.
IAS/IFRS Literature
Price
Conclusions - Measurement - The Price
Interpretations
Part I: Overview
- Market Participants and the Price

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U.S.: The Price
The Price (U.S. GAAP)
Summary
Paragraph 820-10-35-
Measurement states that fair value is “the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction in the principal (or
most advantageous) market at the measurement date under
current market conditions (i.e., an exit price)
regardless of whether that price is directly observable or
estimated using another valuation technique.”
The price should not be adjusted for transaction costs.
Transaction costs are those costs to sell an asset or
transfer a liability in the principal (or most advantageous)
market. Transaction costs are accounted for in
accordance with other guidance.
Transport costs are those costs that would be incurred to
transport an asset from its current location to its
principal (or most advantageous) market, and are not transaction
costs. The price should be adjusted for the

costs to transport the asset from its current location to that
market.
SEC Staff Views
(December 2015)
2008)
2008)
20 Glossary
Price, paragraphs 35-9A through 35-

9C
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Interpretations
-19. What are Transaction Costs and Transportation Costs
As They Relate to the Price Used to
Measure the Dair Value of an Asset or a Liability?
-20. How Should Transaction Costs and Transportation
Costs Be Used in Determining Fair
Value?
Fair Value Option
- The Price
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IAS/IFRS: Application to Nonfinancial Assets
Application to Nonfinancial Assets (IAS/IFRS)
Summary
Highest and Best Use
Measurement, a fair value measurement of a non-financial
asset considers “a market participant’s ability to generate
economic benefits by using the asset in its highest
and best use or by selling it to another market participant that
would use the asset in its highest and best
use.”
The highest and best use of a non-financial asset considers the
use of the asset that is: (a) physically
possible; (b) legally permissible; and (c) financially feasible, as
follows:
A use that is physically possible considers the physical
characteristics of the asset that market
participants would consider when pricing the asset (e.g., the
location or size of a property).
A use that is legally permissible considers any legal restrictions
on the use of the asset that market

zoning regulations applicable to a
property).
A use that is financially feasible considers whether a use of the
asset that is physically possible and
legally permissible generates adequate income or cash flows
(considering the costs of converting the
asset to that use) to produce an investment return that market
participants would require from an
investment in that asset put to that use.
Highest and best use is determined from the perspective of
market participants. An entity’s current use of a
non-financial 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.
An acquired non-financial asset may not be used actively or it
may not be used according to its highest and
best use (e.g., an acquired intangible asset that the entity plans
to use defensively by preventing others from
using it). Nevertheless, the entity should measure the fair value
of a non-financial asset assuming its highest
and best use by market participants.
Valuation Premise for Non-Financial Assets

IFRS 13 describe the valuation
premise concept for non-financial assets as follows:
31 The highest and best use of a non-financial asset establishes
the valuation premise used to measure
the fair value of the asset, as follows:
(a) The highest and best use of a non-financial asset might
provide maximum value to market
participants through its use in combination with other assets as
a group (as installed or otherwise
configured for use) or in combination with other assets and
liabilities (eg a business).
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(i) If the highest and best use of the asset is to use the asset in
combination with other assets or
with other assets and liabilities, the fair value of the asset is the
price that would be received in a
current transaction to sell the asset assuming that the asset
would be used with other assets or
with other assets and liabilities and that those assets and
liabilities (ie its complementary assets

and the associated liabilities) would be available to market
participants.
(ii) Liabilities associated with the asset and with the
complementary assets include liabilities that
fund working capital, but do not include liabilities used to fund
assets other than those within the
group of assets.
(iii) Assumptions about the highest and best use of a non-
financial asset shall be consistent for all
the assets (for which highest and best use is relevant) of the
group of assets or the group of assets
and liabilities within which the asset would be used.
(b) The highest and best use of a non-financial asset might
participants on a stand-alone basis. If the highest and best use
of the asset is to use it on a stand-
alone basis, the fair value of the asset is the price that would be
received in a current transaction to sell
the asset to market participants that would use the asset on a
stand-alone basis.
32 The fair value measurement of a non-financial asset assumes
that the asset is sold consistently with
the unit of account specified in other IFRSs (which may be an
individual asset). That is the case even when

that fair value measurement assumes that the highest and best
use of the asset is to use it in combination
with other assets or with other assets and liabilities because a
fair value measurement assumes that the
market participant already holds the complementary assets and
the associated liabilities.
valuation premise concept for non-financial
assets.
B3 When measuring the fair value of a non-financial asset used
in combination with other assets as a
group (as installed or otherwise configured for use) or in
combination with other assets and liabilities (eg
a business), the effect of the valuation premise depends on the
circumstances. For example:
(a) the fair value of the asset might be the same whether the
asset is used on a stand-alone basis or in
combination with other assets or with other assets and
liabilities. That might be the case if the asset is
a business that market participants would continue to operate.
In that case, the transaction would
involve valuing the business in its entirety. The use of the
assets as a group in an ongoing business

would generate synergies that would be available to market
participants (ie market participant
synergies that, therefore, should affect the fair value of the
asset on either a stand-alone basis or in
liabilities).
(b) an asset’s use in combination with other assets or w ith other
assets and liabilities might be
incorporated into the fair value measurement through
adjustments to the value of the asset used on a
stand-alone basis. That might be the case if the asset is a
machine and the fair value measurement is
determined using an observed price for a similar machine (not
installed or otherwise configured for
use), adjusted for transport and installation costs so that the fair
value measurement reflects the
current condition and location of the machine (installed and
configured for use).
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(c) an asset’s use in combination with other assets or with other

incorporated into the fair value measurement through the market
participant assumptions used to
measure the fair value of the asset. For example, if the asset is
work in progress inventory that is
unique and market participants would convert the inventory into
finished goods, the fair value of the
inventory would assume that market participants have acquired
or would acquire any specialised
machinery necessary to convert the inventory into finished
goods.
(d) an asset’s use in combination with other assets or with other
incorporated into the valuation technique used to measure the
fair value of the asset. That might be
the case when using the multi-period excess earnings method to
measure the fair value of an
intangible asset because that valuation technique specifically
takes into account the contribution of
any complementary assets and the associated liabilities in the
group in which such an intangible asset
would be used.
(e) in more limited situations, when an entity uses an asset
within a group of assets, the entity might
measure the asset at an amount that approximates its fair value

when allocating the fair value of the
asset group to the individual assets of the group. That might be
the case if the valuation involves real
property and the fair value of improved property (ie an asset
group) is allocated to its component
assets (such as land and improvements).
The excess earning method referenced in B3 above is one of the
income approach methods for valuing assets
where there is no active market price discussed in IFRS 13. The
excess earnings valuation method assumes
the entity's earnings are generated by assets. Where the entity’s
earnings are greater than would be expected
to be earned on its tangible assets, the entity is presumed to
have excess earnings created by intangible
assets such as customer lists, patents, licenses and goodwill.
The valuation methodology is to identify and
value tangible assets and value intangible assets by capitalizing
excess earnings associated with those
intangible assets. Specific guidance on how to apply the
multiple earnings method is not provided in IFRS 13
but is covered extensively in valuation literature and in practice
by valuation specialists.
IAS/IFRS Literature

Application to Non-financial Assets
Guidance - Valuation Premise for Non-
financial Assets
Conclusions - Measurement - Application to
Non-financial Assets
Highest and Best Use and Valuation
Premise
Examples - Highest and Best Use and Valuation
Premise - Example 1: Asset Group
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Examples - Highest and Best Use and Valuation
Premise - Example 2: Land

Highest and Best Use and Valuation
Premise - Example 3: Research and Development Project
- .IE 14, Fair Value Measurement - Illustrative
Examples – Use of Multiple Valuation
Techniques - Example 4: Machine Held and Used
13.IE15 - .IE 17, Fair Value Measurement - Illustrative
Examples - Use of Multiple Valuation
Techniques - Example 5: Software Asset
Restricted Assets
Restricted Assets - Example 9:
Restrictions on the Use of an Asset
Interpretations
Part I: Overview
- Application to Non-Financial Assets
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U.S.: Application to Nonfinancial Assets
Application to Nonfinancial Assets (U.S. GAAP)
Summary
Highest and Best Use
According to paragraph 820-10-35-
Value Measurement, a fair value measurement of
a non-financial asset considers “a market participant’s ability to
generate economic benefits by using the
asset in its highest and best use or by selling it to another
market participant that would use the asset in its
highest and best use.”
The highest and best use of a non-financial asset considers the
use of the asset that is: (a) physically
possible; (b) legally permissible; and (c) financially feasible, as
follows:
A use that is physically possible considers the physical
characteristics of the asset that market
location or size of a property).
A use that is legally permissible considers any legal restrictions
on the use of the asset that market

zoning regulations applicable to a
property).
A use that is financially feasible considers whether a use of the
asset that is physically possible and
legally permissible generates adequate income or cash flows
(considering the costs of converting the
asset to that use) to produce an investment return that market
participants would require from an
investment in that asset put to that use.
Highest and best use is determined from the perspective of
market participants. A reporting entity’s current
use of a non-financial 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.
An acquired non-financial asset may not be used actively or it
may not be used according to its highest and
best use (e.g., an acquired intangible asset that the entity plans
to use defensively by preventing others from
using it). Nevertheless, the reporting entity should measure the
fair value of a non-financial asset assuming
its highest and best use by market participants.

Valuation Premise for Non-Financial Assets
Paragraphs 820-10-35-10E and 35-11A of Topic 820 describe
the valuation premise concept for non-
financial assets.
820-10-35-10E The highest and best use of a non-financial asset
establishes the valuation premise used
to measure the fair value of the asset, as follows:
a. The highest and best use of a non-financial asset might
participants through its use in combination with other assets as
a group (as installed or otherwise
configured for use) or in combination with other assets and
liabilities (for example, a business).
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1. If the highest and best use of the asset is to use the asset in
combination with other assets or
with other assets and liabilities, the fair value of the asset is the
price that would be received in a
current transaction to sell the asset assuming that the asset
would be used with other assets or

with other assets and liabilities and that those assets and
liabilities (that is, its complementary
assets and the associated liabilities) would be available to
market participants.
2. Liabilities associated with the asset and with the
complementary assets include liabilities that
fund working capital, but do not include liabilities used to fund
assets other than those within the
group of assets.
3. Assumptions about the highest and best use of a non-financial
asset shall be consistent for all of
the assets (for which highest and best use is relevant) of the
group of assets or the group of assets
and liabilities within which the asset would be used.
b. The highest and best use of a non-financial asset might
participants on a stand-alone basis. If the highest and best use
of the asset is to use it on a stand-
alone basis, the fair value of the asset is the price that would be
received in a current transaction to sell
the asset to market participants that would use the asset on a
stand-alone basis.
820-10-35-11A The fair value measurement of a non-financial
asset assumes that the asset is sold

consistently with the unit of account specified in other Topics
(which may be an individual asset). That is
the case even when that fair value measurement assumes that
the highest and best use of the asset is to
use it in combination with other assets or with other assets and
liabilities because a fair value
measurement assumes that the market participant already holds
the complementary assets and
associated liabilities.
Paragraph 820-10-55-
of the valuation premise concept for non-
financial assets.
820-10-55-3 When measuring the fair value of a non-financial
asset used in combination with other
assets as a group (as installed or otherwise configured for use)
or in combination with other assets and
liabilities (for example, a business), the effect of the valuation
premise depends on the circumstances.
For example:
a. The fair value of the asset might be the same whether the
asset is used on a stand-alone basis or in
liabilities. That might be the case if the asset is

a business that market participants would continue to operate.
In that case, the transaction would
involve valuing the business in its entirety. The use of the
assets as a group in an ongoing business
would generate synergies that would be available to market
participants (that is, market participant
synergies that, therefore, should affect the fair value of the
asset on either a stand-alone basis or in
liabilities).
b. An asset’s use in combination with other assets or with other
incorporated into the fair value measurement through
adjustments to the value of the asset used on a
stand-alone basis. That might be the case if the asset is a
machine and the fair value measurement is
determined using an observed price for a similar machine (not
installed or otherwise configured for
use), adjusted for transportation and installation costs so that
the fair value measurement reflects the
current condition and location of the machine (installed and
configured for use).

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c. An asset’s use in combination with other assets or with other
incorporated into the fair value measurement through the market
participant assumptions used to
measure the fair value of the asset. For example, if the asset is
work-in-process inventory that is
unique and market participants would convert the inventory into
finished goods, the fair value of the
inventory would assume that market participants have acquired
or would acquire any specialized
machinery necessary to convert the inventory into finished
goods.
d. An asset’s use in combination with other assets or with other
incorporated into the valuation technique used to measure the
fair value of the asset. That might be
the case when using the multi-period excess earnings method to
measure the fair value of an
intangible asset because that valuation technique specifically
takes into account the contribution of
any complementary assets and the associated liabilities in the
group in which such an intangible asset

would be used.
e. In more limited situations, when a reporting entity uses an
asset within a group of assets, the
reporting entity might measure the asset at an amount that
approximates its fair value when
allocating the fair value of the asset group to the individual
assets of the group. That might be the case
if the valuation involves real property and the fair value of
improved property (that is, an asset group)
is allocated to its component assets (such as land and
improvements).
The excess earning method referenced in paragraph 820-10-55-3
above is one of the income approach
methods for valuing assets where there is no active market
price. The excess earnings valuation method
assumes the entity's earnings are generated by assets. Where the
entity’s earnings are greater than would be
expected to be earned on its tangible assets, the entity is
presumed to have excess earnings created by
intangible assets such as customer lists, patents, licenses and
goodwill. The valuation methodology is to
identify and value tangible assets and value intangible assets by
capitalizing excess earnings associated with

those intangible assets. Specific guidance on how to apply the
multiple earnings method is not provided in
and in practice by valuation specialists.
SEC Staff Views
(December 2009)
2008)
Clarifications on Fair Value Accounting
(September 2008)
-Hing, Exclusion of Tax
Amortization Benefits (December 2006)
20 Glossary
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35 Subsequent Measurement - Definition of Fair Value -
Application to Nonfinancial Assets
-
10A through 35-10D
-
10E through 35-14
ustrations -
Implementation Guidance – The Fair Value
Measurement Approach - Valuation Premise for Nonfinancial
Assets, paragraph 55-3
55 Implementation Guidance and Illustrations - Illustrations
paragraph 55-25
-26 through 55-29
-30 through 55-31
-Process Research and Development Project,
paragraph 55-32
55-35

-36 through
55-38A
-39 through 55-41
-51
-54
through 55-55
Other Guidance
BC27 through BC29
paragraphs BC45 through BC49
Interpretations
C. Measurement of Fair Value
-2. What is The "Highest and Best Use" Concept?
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-3. Why is The Highest and Best Use Concept Key to

Valuing Nonfinancial Assets in
Combination with Other Assets or with Other Assets and
Liabilities?
-4.What is The Meaning of "Legally Permissible" in
Assessing Highest and Best Use?
-5. What are Examples of Potential Complexities Related to
Determining Highest and Best Use?
-6. How Do Restrictions on The Sale or Use of Assets
Affect Fair Value Measurement?
-7. What Types of Valuation Approaches Might Be Used To
Measure Fair Value Within The Fair
Value Hierarchy?
unting: Measurement, Disclosure, and the
Fair Value Option
– Grouping Financial Assets and
Liabilities
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IAS/IFRS: Application to Liabilities and an Entity’s Own

Equity
Instruments
Application to Liabilities and an Entity’s Own Equity
Instruments (IAS/IFRS)
Summary
General principles
A financial or non-financial liability or an entity’s own equity
instrument (e.g., equity interests issued as
consideration in a business combination) is assumed to be
transferred to a market participant at the
measurement date. This principal applies to a liability or equity
under the assumption that they will continue
to be held by the market participant and not extinguished or
cancelled on the measurement date (IFRS 13,
Even when there is no observable market to provide pricing
information about the transfer of a liability or an
entity’s own equity instrument (e.g., because contractual or
other legal restrictions prevent the transfer of
such items), there might be an observable market for such items
if they are held by other parties as assets
(e.g., a corporate bond or a call option on an entity’s shares). In
all cases, an entity should maximize the use
of relevant observable inputs and minimize the use of

unobservable inputs to meet the objective of a fair
value measurement.
Liabilities and Equity Instruments Held by Other Parties as
Assets
An entity should measure the fair value of the liability or equity
instrument from the perspective of a market
participant that holds the identical item as an asset at the
measurement date when a quoted price for the
transfer of an identical or a similar liability or entity’s own
equity instrument is not available and if the
identical item is held by another party as an asset.
The fair value of the liability or equity instrument should be
measured as follows:
Using the quoted price in an active market for the identical i tem
held by another party as an asset, if
that price is available;
Using other observable inputs, such as the quoted price in a
market that is not active for the identical
item held by another party as an asset; or
Using another valuation technique, such as: (a) an income
approach; or (b) a market approach. These
methods of estimating fair value are described in detail in IFRS

If there are factors specific to the asset that are not applicable
to the fair value measurement of the liability
or equity instrument, an entity should adjust the quoted price of
a liability or an entity’s own equity
instrument held by another party as an asset. The price of the
asset should not reflect the effect of a
restriction preventing the sale of that asset. Factors that may
indicate that the quoted price of the asset
should be adjusted include the following:
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The quoted price for the asset relates to a similar (but not
identical) liability or equity instrument held
by another party as an asset. For example, the liability or equity
instrument may have a particular
characteristic (e.g., the credit quality of the issuer) that is
different from that reflected in the fair value
of the similar liability or equity instrument held as an asset.
The unit of account for the asset is not the same as for the
liability or equity instrument. For example,
for liabilities, the price for an asset may reflect a combined

price for a package comprising both the
amounts due from the issuer and a third-party credit
enhancement. If the unit of account for the
liability is not for the combined package, the objective is to
measure the fair value of the issuer’s
liability, not the fair value of the combined package. The entity
would therefore adjust the observed
price for the asset to exclude the effect of the third-party credit
enhancement.
Liabilities and Equity Instruments Not Held by Other Parties as
Assets
instrument using a valuation technique from
the perspective of a market participant that owes the liability or
has issued the claim on equity when a quoted
price for the transfer of an identical or a similar liability or
entity’s own equity instrument is not available
and the identical item is not held by another party as an asset.
For example, when applying a present value technique an entity
might take into account either of the
following: (a) the future cash outflows that a market participant
would expect to incur in fulfilling the
obligation, including the compensation that a market participant
would require for taking on the obligation;

or (b) the amount that a market participant would receive to
enter into or issue an identical liability or equity
instrument, using the assumptions that market participants
would use when pricing the identical item (e.g.,
having the same credit characteristics) in the principal (or most
advantageous) market for issuing a liability
or an equity instrument with the same contractual terms.
Non-Performance Risk
The fair value of a liability reflects the effect of non-
performance risk. Non-performance risk includes, but
may not be limited to, an entity’s own credit risk. Non-
performance risk is assumed to be the same before
and after the transfer of the liability.
An entity should consider the effect of its credit risk (credit
standing) and any other factors that might
influence the likelihood that the obligation will or will not be
fulfilled when measuring the fair value of a
liability.
performance risk on the basis of its unit of account. The
issuer of a liability issued with an inseparable third-party credit
enhancement that is accounted for

separately from the liability should not include the effect of the
credit enhancement (e.g., a third-party
guarantee of debt) in the fair value measurement of the liability.
The issuer’s own credit standing should be
considered and not that of the third party guarantor when
measuring the fair value of the liability if the credit
enhancement is accounted for separately from the liability.
Restriction Preventing the Transfer of a Liability or an Entity’s
Own Equity Instrument
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An entity should not include a separate input or an adjustment
to other inputs relating to the existence of a
restriction that prevents the transfer of the item when measuring
the fair value of a liability or an entity’s
own equity instrument.
Financial Liability with a Demand Feature
The fair value of a financial liability with a demand feature
(e.g., a demand deposit) is not less than the
amount payable on demand, discounted from the first date that
the amount could be required to be paid.

IAS/IFRS Literature
Application to Liabilities and an Entity’s Own
Equity Instruments - General Principles
Equity Instruments - Non-Performance Risk
Equity Instruments - Restriction Preventing the Transfer of a
Liability or an Entity’s Own Equity
Instrument
- Measurement - Application
to Liabilities and an Entity’s Own
Equity Instruments - Financial Liability with a Demand Feature
- .66, Fair Value Measurement - Measurement –
Valuation Techniques
- .B33, Fair Value Measurement - Appendix B:
Application Guidance - Applying Present Value
Techniques to Liabilities and an Entity’s Own Equity
Instruments Not Held by Other Parties as Assets
- .BCZ103, Fair Value Measurement - Basis for

Liabilities
an Entity’s Own Equity Instruments
Examples - Measuring Liabilities
Measuring Liabilities - Example 10:
Structured Note
Examples - Measuring Liabilities - Example
11: Decommissioning Liability
12: Debt Obligation - Quoted Price
13: Debt Obligation - Present Value Technique
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Examples – Measuring Fair Value when the
Volume or Level of Activity for and Asset or a Liability has
Significantly Decreased - Example 14:
Estimating a Market Rate of Return when the Volume or level
of Activity for an asset has Significantly
Decreased
Interpretations
Part I: Overview
- Application to Liabilities and an Entity’s Own
Equity Instruments
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U.S.: Application to Liabilities and an Entity’s Own Equity
Instruments
Application to Liabilities and an Entity’s Own Equity
Instruments (U.S. GAAP)
Summary

General principles
A financial or non-financial liability or a reporting entity’s own
equity instrument (e.g., equity interests
issued as consideration in a business combination) is assumed to
be transferred to a market participant at
the measurement date. This principal applies to a liability or
equity under the assumption that they will
continue to be held by the market participant and not
extinguished or cancelled on the measurement date.
Even when there is no observable market to provide pricing
information about the transfer of a liability or a
reporting entity’s own equity instrument (e.g., because
contractual or other legal restrictions prevent the
transfer of such items), there might be an observable market for
such items if they are held by other parties
as assets (e.g., a corporate bond or a call option on an entity’s
shares). In all cases, an entity should
maximize the use of relevant observable inputs and minimize
the use of unobservable inputs to meet the
objective of a fair value measurement.
Liabilities and Equity Instruments Held by Other Parties as
Assets
A reporting entity should measure the fair value of the liability
or equity instrument from the perspective of

a market participant that holds the identical item as an asset at
the measurement date when a quoted price
for the transfer of an identical or a similar liability or entity’s
own equity instrument is not available and if
the identical item is held by another party as an asset.
The fair value of the liability or equity instrument should be
measured as follows:
Using the quoted price in an active market for the identical item
held by another party as an asset, if
that price is available;
Using other observable inputs, such as the quoted price in a
market that is not active for the identical
item held by another party as an asset; or
Using another valuation approach, such as: (a) an income
approach; or (b) a market approach.
When measuring the fair value of a liability or an equity
instrument held by another party as an asset, a
reporting entity should adjust the quoted price of the asset only
if there are factors specific to the asset that
are not applicable to the fair value measurement of the liability
or equity instrument. When the asset held by
another party includes a characteristic restricting its sale (see
ASC paragraphs 820-10-35-6B and 820-10-

35-
equity instrument also would include the effect of
the restriction. Some factors that may indicate that the quoted
price of the asset should be adjusted include
the following:
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The quoted price for the asset relates to a similar (but not
identical) liability or equity instrument held
by another party as an asset. For example, the liability or equity
instrument may have a particular
characteristic (e.g., the credit quality of the issuer) that is
different from that reflected in the fair value
of the similar liability or equity instrument held as an asset.
The unit of account for the asset is not the same as for the
liability or equity instrument. For example,
for liabilities, the price for an asset may reflect a combined
price for a package comprising both the
amounts due from the issuer and a third-party credit
enhancement. If the unit of account for the
liability is not for the combined package, the objective is to

measure the fair value of the issuer’s
liability, not the fair value of the combined package. The entity
would therefore adjust the observed
price for the asset to exclude the effect of the third-party credit
enhancement.
Liabilities and Equity Instruments Not Held by Other Parties as
Assets
instrument using a valuation technique from
the perspective of a market participant that owes the liability or
has issued the claim on equity when a quoted
price for the transfer of an identical or a similar liability or
entity’s own equity instrument is not available
and the identical item is not held by another party as an asset.
For example, when applying a present value technique an entity
might take into account either of the
following: (a) the future cash outflows that a market participant
would expect to incur in fulfilling the
obligation, including the compensation that a market participant
would require for taking on the obligation;
or (b) the amount that a market participant would receive to
enter into or issue an identical liability or equity
instrument, using the assumptions that market participants
would use when pricing the identical item (e.g.,

having the same credit characteristics) in the principal (or most
advantageous) market for issuing a liability
or an equity instrument with the same contractual terms.
Non-Performance Risk
performance risk. Non-performance risk includes, but
may not be limited to, an entity’s own credit risk. Non-
performance risk is assumed to be the same before
and after the transfer of the liability.
An entity should consider the effect of its credit risk (credit
standing) and any other factors that might
influence the likelihood that the obligation will or will not be
fulfilled when measuring the fair value of a
liability.
performance risk on the basis of its unit of account. The
issuer of a liability issued with an inseparable third-party credit
enhancement that is accounted for
separately from the liability should not include the effect of the
credit enhancement (e.g., a third-party
guarantee of debt) in the fair value measurement of the liability.
The issuer’s own credit standing should be

considered and not that of the third party guarantor when
measuring the fair value of the liability if the credit
enhancement is accounted for separately from the liability.
Restriction Preventing the Transfer of a Liability or an Entity’s
Own Equity Instrument
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An entity should not include a separate input or an adjustment
to other inputs relating to the existence of a
restriction that prevents the transfer of the item when measuring
the fair value of a liability or an entity’s
own equity instrument.
Fair Value of Deposit Liabilities
The fair value of a deposit liability with no defined maturity is
the amount payable on demand at the
reporting date.
SEC Staff Views
Facing Smaller Issuers, PCAOB Forums on
Auditing in the Small Business Environment, Craig Olinger,

Deputy Chief Accountant, Division of
Corporation Finance (December2012) – Equity Transactions,
page 25
35 Subsequent Measurement - Definition of Fair Value -
Application to Liabilities and Instruments
Classified in a Reporting Entity’s Shareholder’s Equity
-16 through 35-16L
-17 through 35-18A
Instrument Classified in a Reporting
Entity’s Shareholders’ Equity, paragraphs 35-18B through 35-
18C
– Valuation Techniques -
General Principles, paragraphs 35-24
through 35-27
55 Implementation Guidance and Illustrations - Illustrations
-55A through
55-56
- General, paragraphs 55-
57 through 55-57A

agraphs 55-58 through 55-59
-77
through 55-81
- Quoted Price, paragraphs 55-82
through 55-84
- Present Value Technique,
paragraphs 55-85 through 55-89
of Activity for an Asset or a
Liability Has Significantly Decreased, paragraphs 55-90
through 55-98
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- Fair
Value Option - Overall Guidance - Unit
of Accounting, paragraph 25-13
- Depository and Lending, 470 Debt,
50 Disclosure - Fair Value of Deposit
Liabilities, paragraph 50-1
Other Guidance

820): Fair Value Measurement of Equity
Securities Subject to Contractual Sale Restrictions
-09, Codification Improvements
ASU No. 2011-04, Fair Value Measurement (Topic 820)
Reporting Entity’s Shareholders’ Equity,
Interpretations
– Application to Liabilities and
Instruments Classified in Shareholders’
Equity
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IAS/IFRS: Application to Financial Assets and Liabilities with
Offsetting Positions
Application to Financial Assets and Liabilities with Offsetting
Positions
(IAS/IFRS)
Summary
An entity that holds a group of financial assets and financial
liabilities is exposed to market risks and to the
credit risk of each of the counterparties. An entity that manages
that group of financial assets and financial
liabilities (within the scope of IAS 39 Financial Instruments:
Financial
either market risks or credit risk may apply, as
an accounting policy decision, an exception to IFRS 13 Fair
That exception permits an entity to measure the fair value of a
group of financial assets and financial
liabilities on the basis of the price that would be received to sell
a net long position (i.e., an asset) for a
particular risk exposure or to transfer a net short position (i .e.,
a liability) for a particular risk exposure in an
orderly transaction between market participants at the
measurement date under current market conditions.

An entity should measure the fair value of the group of financial
assets and financial liabilities consistently
with how market participants would price the net risk exposure
at the measurement date.
The use of the exception discussed above is permitted only if
the entity does all the following:
Manages the group of financial assets and financial liabilities
on the basis of the entity’s net exposure
to a particular market risk (or risks) or to the credit risk of a
particular counterparty in accordance
with the entity’s documented risk management or investment
strategy;
Provides information on that basis about the group of financial
assets and financial liabilities to the
entity’s key management personnel, as defined in IAS 24
Measures those financial assets and financial liabilities at fair
value in the statement of financial
position at the end of each reporting period.
The exception does not pertain to financial statement
presentation. The basis for the presentation of
financial instruments in the statement of financial position may
differ from the basis for the measurement
of financial instruments. In such cases an entity may need to

allocate the portfolio-level adjustments to the
individual assets or liabilities that make up the group of
financial assets and financial liabilities managed on
the basis of the entity’s net risk exposure. An entity should
perform such allocations on a reasonable and
consistent basis using a methodology appropriate in the
circumstances.
An accounting policy decision should be made to use the
exception (see the “10 Overall – Accounting
Corrections chapter).
The exception applies only to financial assets, financial
liabilities and other contracts within the scope of IAS
39 Financial Instruments: Recognition and Mea
IFRS 9 Financial Instruments (July 2014). The
references to financial assets and financial liabilities is this
section should be read as applying to all
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contracts within the scope of, and accounted for in accordance
with, IAS 39 or IFRS 9, regardless of whether
they meet the definitions of financial assets or financial

liabilities in IAS 32 Financial Instruments: Presentation
Disclosure
An entity must disclose the accounting policy decision to use
the exception described above.
IAS/IFRS Literature
Application to Financial Assets and Liabilities
with Offsetting Positions in Market Risks or Counterparty Risk
- Disclosure
Financial Assets and Financial Liabilities with Offsetting
Positions in Market Risks or Counterparty
Credit Risk
– Appendix A: Defined
Terms - Market Risk
– Appendix A: Defined
Terms - Credit Risk
Interpretations

Part I: Overview
- Application to Financial Assets and Financial
Liabilities with Offsetting
Positions in Market Risks or Counterparty Credit Risk
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U.S.: Application to Financial Assets and Liabilities with
Offsetting Positions
Application to Financial Assets and Liabilities with Offsetting
Positions (U.S.
GAAP)
Summary
A reporting entity that holds a group of financial assets,
financial liabilities, nonfinancial items accounted
for as derivatives in accordance with Topic 815, or
combinations of these items, is exposed to market risks
and to the credit risk of each of the counterparties. An entity
that manages that group of financial assets,
financial liabilities, nonfinancial items accounted for as
derivatives in accordance with Topic 815, or
combinations of these items on the basis of its net exposure to

either market risks or credit risk may apply,
as an accounting policy decision, an exception to Topic 820 Fair
Value Measurement for measuring fair value.
That exception permits a reporting entity to measure the fair
value of a group of financial assets, financial
liabilities, nonfinancial items accounted for as derivatives in
of these items on the basis of the price that would be received to
sell a net long position (i.e., an asset) for a
particular risk exposure or paid to transfer a net short position
(i.e., a liability) for a particular risk exposure
in an orderly transaction between market participants at the
measurement date under current market
conditions. A reporting entity should measure the fair value of
the group of financial assets, financial
accordance with Topic 815, or combinations of
these items consistently with how market participants would
price the net risk exposure at the measurement
date.
The use of the exception to the general measurement guidance is
permitted only if the entity does all the
following:

1) Manages the group of financial assets, financial liabilities,
nonfinancial items accounted for as
derivatives in accordance with Topic 815, or combinations of
these items on the basis of the entity’s net
exposure to a particular market risk (or risks) or to the credit
risk of a particular counterparty in
accordance with the reporting entity’s documented risk
management or investment strategy;
2) Provides information on that basis about the group of
financial assets, financial liabilities, nonfinancial
items accounted for as derivatives in accordance with Topic
815, or combinations of these items to the
reporting entity’s management; and
3) Measures those financial assets, financial liabilities,
nonfinancial items accounted for as derivatives in
accordance with Topic 815, or combinations of these items at
fair value in the statement of financial
position at the end of each reporting period.
The exception does not pertain to financial statement
presentation. The basis for the presentation of
financial instruments in the statement of financial position may
differ from the basis for the measurement
of financial instruments. In such cases a reporting entity may
need to allocate the portfolio-level

adjustments to the individual assets or liabilities that make up
the group of financial assets, financial
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accordance with Topic 815, or combinations of
these items managed on the basis of the reporting entity’s net
risk exposure. An entity should perform such
allocations on a reasonable and consistent basis using a
methodology appropriate in the circumstances.
This exception applies only to financial assets and financial
liabilities within the scope of Topic 815 or Topic
accordance with Topic 815.
A reporting entity that uses this exception should apply that
accounting policy, including its policy for
allocating bid-ask adjustments and credit adjustments, if
applicable, consistently from period to period for a
particular portfolio.
Exposure to Market Risks
When using this exception to measure the fair value of a group

of financial assets, financial liabilities,
nonfinancial items accounted for as derivatives in accordance
items managed on the basis of the reporting entity’s net
exposure to a particular market risk (or risks), the
reporting entity should apply the price within the bid-ask spread
that is most representative of fair value in
the circumstances to the reporting entity’s net exposure to those
market risks.
When using this exception, a reporting entity should ensure that
the market risk (or risks) to which the
reporting entity is exposed within that group of financial assets,
financial liabilities, nonfinancial items
accounted for as derivatives in accordance with Topic 815, or
combinations of these items is substantially the
same. For example, a reporting entity would not combine the
interest rate risk associated with a financial
asset with the commodity price risk associated with a financial
liability, because doing so would not mitigate
the reporting entity’s exposure to interest rate risk or
commodity price risk. When using the exception, any
basis risk resulting from the market risk parameters not being
identical should be taken into account in the
fair value measurement of the financial assets, financial

liabilities, nonfinancial items accounted for as
derivatives in accordance with Topic 815, or combinations of
these items within the group.
Similarly, the duration of the reporting entity’s exposure to a
particular market risk (or risks) arising from
the financial assets, financial liabilities, nonfinancial items
accounted for as derivatives in accordance with
Topic 815, or combinations of these items should be
substantially the same. For example, a reporting entity
that uses a 12-month futures contract against the cash flows
associated with 12 months’ worth of interest
rate risk exposure on a 5-year financial instrument within a
group made up of only those financial assets,
financial liabilities, nonfinancial items accounted for as
derivatives in accordance with Topic 815, or
combinations of these items measures the fair value of the
exposure to 12-month interest rate risk on a net
basis and the remaining interest rate risk exposure (i.e., years 2
through 5) on a gross basis.
Exposure to the Credit Risk of a Particular Counterparty
When using the exception to measure the fair value of a group
of financial assets, financial liabilities, items
accounted for as derivatives in accordance with Topic 815, or
combinations of these items entered into with a

particular counterparty, the reporting entity should include the
effect of the reporting entity’s net exposure
to the credit risk of that counterparty or the counterparty’s net
exposure to the credit risk of the reporting
entity in the fair value measurement when market participants
would take into account any existing
arrangements that mitigate credit risk exposure in the event of
default (e.g., a master netting agreement
with the counterparty or an agreement that requires the
exchange of collateral on the basis of each party’s
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net exposure to the credit risk of the other party). The fair value
measurement should reflect market
participants’ expectations about the likelihood that such an
arrangement would be legally enforceable in the
event of default.
Disclosure
A reporting entity must disclose the accounting policy decision
to use the exception described above.

- Definition of Fair Value -
Application to Financial Assets and
Financial Liabilities with Offsetting Positions in Market Risks
or Counterparty Risk, paragraphs 35-
18D through 35-18L
-2D
Other Guidance
-09, Codification Improvements
ASU No. 2011-04, Fair Value Measurement (Topic 820)
When a Reporting Entity Has Offsetting
Positions in Market Risks or Counterparty Credit Risk,
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IAS/IFRS: Fair Value at Initial Measurement
Fair Value at Initial Measurement (IAS/IFRS)
Summary
In an exchange transaction, the transaction price is the price
paid to acquire an asset or received to assume a
liability (an entry price). In contrast, the fair value of the asset
or liability is the price that would be received
to sell the asset or paid to transfer the liability (an exit price).
In many cases the entry price of an asset or liability will equal
the exit price (e.g., when the transaction to buy
an asset would take place in the market in which the asset
would be sold). In such cases, the entry
(transaction) price equals the fair value of an asset or a liability
at initial recognition.
In other cases where the transaction price differs from fair value
and other IFRSs require or permit an entity
to measure an asset or a liability initially at fair value, a ga in or
loss should be recognized in profit or loss
unless that guidance requires otherwise.
Factors specific to the transaction and the asset or liability
should be considered when determining whether
a transaction price represents the fair value of the asset or
liability at initial recognition. A transaction price

may not be the best evidence of the fair value of an asset or
liability at initial recognition if any of the
following conditions exist:
The transaction is between related parties.
The transaction takes place under duress or the seller is forced
to accept the price in the transaction
(e.g., the seller is experiencing financial difficulty).
The unit of account represented by the transaction price is
different from the unit of account for the
asset or liability measured at fair value (e.g., the asset or
liability measured at fair value is only one of
the elements in the transaction, the transaction includes unstated
rights and privileges that are
separately measured, or the transaction price includes
transaction costs).
The market in which the transaction takes place is different
from the market in which the entity would
sell the asset or transfer the liability (i.e., the most
advantageous market).
See the “30 Goodwill or Gain from Bargain Purchase, Including
Consideration Transferred - Goodwill and
Combinations chapter for a discussion of gains from a

bargain purchase in a business combination. See the “605
of the 905
Agriculture chapter for a discussion on gains or losses on the
initial recognition of a biological asset.
IAS/IFRS Literature
- .60, Fair Value Measurement - Measurement - Fair
Value at Initial Recognition
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Guidance - Fair Value at Initial
Recognition
Transaction Prices and Fair Value at Initial
Recognition
Examples - Transaction Prices and Fair Value
at Initial Recognition - Example 7: Interest Rate Swap at Initial
Recognition
Conclusions - Measurement - Definition of Fair

Value - Fair Value as Current Exit Price
Conclusions - Measurement - Fair Value at
Initial Recognition
- .5.1.3, Financial Instruments (July 2014), Chapter 5
Measurement - 5.1 Initial Measurement
- B5.1.2A, Financial Instruments (July 2014),
Appendix B - Application Guidance –
Measurement (Chapter 5) - Initial Measurement
International Accounting Standards (IAS)
ancial Instruments: Recognition and Measurement
- Measurement - Initial Measurement
of Financial Assets and Financial Liabilities
Measurement – Appendix A: Application Guidance
– Measurement – Fair Value Measurement Considerations - No
Active Market: Valuation Technique
Interpretations
Part I: Overview

- Fair Value at Initial Recognition
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U.S.: Fair Value at Initial Measurement
Fair Value at Initial Measurement (U.S. GAAP)
Summary
In an exchange transaction, the transaction price is the price
paid to acquire an asset or received to assume a
liability (an entry price). In contrast, the fair value of the asset
or liability is the price that would be received
to sell the asset or paid to transfer the liability (an exit price).
In many cases the entry price of an asset or liability will equal
the exit price (e.g., when the transaction to buy
an asset would take place in the market in which the asset
would be sold). In such cases, the entry
(transaction) price equals the fair value of an asset or a liability
at initial recognition.
In other cases where the transaction price differs from fair value
and other guidance requires or permits a
reporting entity to measure an asset or a liability initially at fair
value, a gain or loss should be recognized in

earnings unless that guidance requires otherwise.
Factors specific to the transaction and the asset or liability
should be considered when determining whether
a transaction price represents the fair value of the asset or
liability at initial recognition. A transaction price
may not be the best evidence of the fair value of an asset or
liability at initial recognition if any of the
following conditions exist:
The transaction is between related parties.
The transaction takes place under duress or the seller is forced
to accept the price in the transaction
(e.g., the seller is experiencing financial difficulty).
The unit of account represented by the transaction price is
different from the unit of account for the
asset or liability measured at fair value (e.g., the asset or
liability measured at fair value is only one of
the elements in the transaction, the transaction includes unstated
rights and privileges that are
separately measured, or the transaction price includes
transaction costs).
The market in which the transaction takes place is different
from the market in which the entity would
sell the asset or transfer the liability (i.e., the most

advantageous market).
SEC Staff Views
2008)
Value: Best
2008)
-Hing, Exclusion of Tax
Amortization Benefits (December 2006)
- Inception Gains
(December 2006)
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20 Glossary

ount
-1 through 30-6
- Valuation Techniques,
paragraph 35-24C
- Illustrations -
Example 5: Transaction Prices and
Initial Fair Value at Initial Recognition- Interest Rate Swap at
Initial Recognition, paragraphs 55-46
through 55-49
Other Guidance
aragraph BC81
Interpretations

-28. Are There Cases Where the Entry Price Paid Would
Not Qualify As an Acceptable Fair Value
Estimate?
Measurement, Disclosure, and the
Fair Value Option
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- Specific Considerations for Initial
Measurement
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IAS/IFRS: Valuation Techniques
Valuation Techniques (IAS/IFRS)
Summary
an “entity shall use valuation techniques that

are appropriate in the circumstances and for which suffici ent
data are available to measure fair value,
maximizing the use of relevant observable inputs and
minimizing the use of unobservable inputs.”
The objective is to estimate the price at which an orderly
transaction would take place between market
participants at the measurement date. Valuation techniques
consistent with the market approach, income
approach, or cost approach are used to measure fair value. The
following methods prescribed by IFRS 13 are
described in greater detail in Appendix B, paragraphs 5 –
Market Approach - The market approach uses prices and other
relevant information generated by
market transactions involving identical or comparable assets or
liabilities or a business. An example
would be the use of market multiples derived from a set of
comparables. A valuation technique
consistent with the market approach includes matrix pricing.
Matrix pricing is a technique that is
sometimes used to price bonds where the fair value of the debt
security is based on quoted prices of
other bonds used as a benchmark for the valuation.
Income Approach - The income approach uses valuation

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