FASB ASC 820 (FAS 157), Fair Value Measurements, is an accounting standard issued in September 2006 and became effective for entities with fiscal years beginning after November 15, 2007. The new standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. FASB states ASC 820 “does not expand the use of fair value in any new circumstances.”
ASC Statement 820 includes:
- The definition of “fair value” 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.”
- A fair value hierarchy used to classify the source of information used in fair value measurements (i.e. market based or non-market based);
- Expanded disclosure requirements for assets and liabilities measured at fair value
- Clarification that changes in credit risk must be included in the valuation
- The fair value is based on the exit price (for an asset, the price at which it would be sold) rather than the entry price
We provide mark-to-market accounting for derivative instruments that need to be valued on a quarterly basis including:
- Swaps
- Warrants
- Options
- Exotic instruments