Over 40 standards require some aspect of fair value reporting. Prior to the issuance of Accounting Standards Codification 820 (formerly FAS 157) there was little guidance and inconsistency between financial statements was widespread. While not directly creating any new rules or requirements, ASC 820 sought to regulate and standardize fair value reporting.
What is ASC 820?
Perhaps the most vital contribution of Accounting Standards Codification 820 to financial reporting is the clear 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". Beyond that the standard establishes three valuation methodologies to use in the estimation of fair value:
- The market approach – uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities
- The income approach – uses valuation techniques to convert future benefits and costs (usually potential cash flows or earnings) into a single present value amount.
- the cost approach – based on the amount that currently would be required to replace the service capacity of an asset
Accounting Standards Codification 820 is the centerpiece of all of our valuations – ASC 350, ASC 360, ASC 718, ASC 805, ASC 815, etc. Our team of experts uses each of the methodologies as prescribed by ASC 820 (and the different variations that have evolved since) to triangulate to a well thought out, highly defensible answer.
var _gaq = _gaq || ; _gaq.push(['_setAccount', 'UA-17268178-2']); _gaq.push(['_setDomainName', 'cabrilloadvisors.com']); _gaq.push(['_setAllowLinker', true]); _gaq.push(['_trackPageview']);