Fair Value Accounting: An Overview (Course Id 1126)

Accounting - Accounting for Course Id 1126

Numerous FASB Standards have been issued requiring certain items to be measured and reported at “fair value” on the Balance Sheet. Prior to the release of ASC 820 Fair Value Measurements and Disclosures (formerly known as SFAS 157), the concept of “fair value” had never been formally defined in U.S. accounting literature. Since its issuance in September 2006, ASC 820 has become one the most controversial accounting standards ever released.

This course provides a conceptual review of fair value accounting, as outlined in ASC 820 and other U.S. accounting standards. This course will also provide an overview of the authoritative guidance for auditing fair value measurements and disclosures, SAS No. 101.

NASBA QAS - Text - Technical - NASBA Registry - 1126

Course Learning Objectives

• Define ‘fair value’ and explain the fair value framework & hierarchy included in ASC 820 Fair Value Measurements and Disclosures.
  
• Identify the roles that management and the auditor have in the fair value measurement process.
  
• Recognize the key aspects of the fair value option.
  
• Recognize the limitations of fair value accounting.

Chapter 1
The Evolution of Fair Value

• Define the ‘historical cost’ method of accounting and calculate the current ‘amortized cost’ of assets and liabilities accounted for under this method.
  
  
• Define the ‘fair value’ method of accounting for assets and liabilities and recognize accounting practices consistent with this method.
  
  
• Recognize the differences between the ‘historical cost’ and ‘fair value’ methods of accounting.

Chapter 2
Measurement

• Define ‘fair value’ as outlined in ASC 820 Fair Value Measurements and Disclosures.
  
  
• Recognize accounting practices that are consistent with the fair value framework established in ASC 820.

Chapter 3
Valuation Techniques & Inputs

• Recognize valuation techniques that are consistent with the guidance of ASC 820.
  
  
• Recognize the proper classification of valuation inputs into the levels of the fair value hierarchy.

Chapter 4
Auditing Fair Value Measurements and Disclosures

• Recognize accounting practices consistent with the fair value disclosure requirements outlined in ASC 820.
  
  
• Recognize auditing practices consistent with the standards of fieldwork related to auditing fair value measurements and disclosures included in SAS No. 101.
  
  
• Identify the roles that management and the auditor have in the fair value measurement process.

Chapter 5
The Fair Value Option

• Recognize the proper application of the fair value option under ASC 825-10.
  
  
• Identify assets & liabilities that are eligible for the fair value option.

Chapter 6
The Future of Fair Value

• Recognize the principal arguments against fair value accounting
  
  
• Explain the limitations of applying the ASC 820 definition of fair value when markets are illiquid or inactive

Chapter 1 – The Evolution of Fair Value

1.1   Historical Cost

1.2   The Rising Tide of Fair Value: The S&L Crisis

1.3   A New Sense of Urgency: The Enron Crisis

1.4   ASC 820: Fair Value Measurements and Disclosures

Chapter 2 – Measurement

2.1   Definition of Fair Value

2.2   Fair Value Framework

2.2.1   The price

2.2.2   The principal (or most Advantageous) market

2.2.3   Market participants

2.2.4   Attributes of the asset or liability

2.2.5   “Highest and best use”

2.2.6   Unit of account

2.3   Fair Value at Initial Recognition

Chapter 3 – Valuation Techniques & Inputs

3.1   Valuation Techniques

3.2   Valuation Inputs

3.3   Fair Value Hierarchy

3.3.1   Level 1 Inputs

3.3.2   Level 2 Inputs

3.3.3   Level 3 Inputs

3.4   Pricing Services and Broker Quotes

3.5   Bid-Ask Prices

Chapter 4 – Auditing Fair Value Measurements and Disclosures

4.1   ASC 820 Disclosures

4.1.1   Recurring fair value measurements

4.1.2   Non-recurring fair value measurements

4.2   SAS No. 101, Auditing Fair Value Measurements and Disclosures

4.2.1   Understanding the entity’s process for determining fair value measurements and disclosures and the relevant controls, and assessing risk

4.2.2   Evaluating conformity of fair value measurements and disclosures with GAAP

4.2.3   Testing the entity’s fair value measurements and disclosures

4.2.4   Testing management’s significant assumptions, the valuation model, and the underlying data

4.2.5   Auditing Disclosures about Fair Values

Chapter 5 – The Fair Value Option

5.1   Introducing the Fair Value Option

5.2   ASC 825-10 Financial Instruments: The Fair Value Option

5.2.1   Scope

5.2.2   Excluded items

5.2.3   Accounting Election

5.2.4   Timing

5.2.5   Accounting Impact

Chapter 6 – The Fair Value Controversy

6.1   The Great Recession of 2007-2009

6.3   The Critical Backlash at “Fair Value”

Glossary