Fair values are more common in financial reports because they've increased in business importance in recent years. Increasingly elaborate financial instruments and risk management practices have created financial statement elements for which historical cost is almost irrelevant, while fair value and its fluctuations are extremely relevant. This course is a comprehensive survey of fair value accounting, and provides: (1) a discussion of ASC 820, Fair Value Measurements and Disclosures, (2) a list of the financial statement items for which fair value reporting is required or allowed, (3) a variety of valuation models, and (4) fair value disclosure requirements.
Upon successful completion of this course, participants will be able to:
- Identify the appropriate circumstances for using fair values in financial reporting.
- Recognize the objectives of using present values and the elements used in present value measurement to help determine fair value.
- Recognize several valuation models used in determining fair value for different assets and liabilities.
- Calculate the present value for different investments.
Table of Contents
Fair Value Principle
Fair Value Hierarchy
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly.
Level 3: Unobservable inputs (for example, the reporting entity’s assumptions).
Using Cash Flow Information and Present Value in Accounting (SFAC No. 7)
Elements of a PV Measurement
- Estimates of future cash flows
- Expected variability of their amount and timing
- The price of uncertainty inherent in an asset or liability
- Other factors, such as lack of liquidity or market imperfections
- The time value of money based on the risk-free interest rate
Fair Value Measurements
Fair Value Option for Financial Assets and Financial Liabilities
Where are Fair Values Used in Financial Statements?
Fair Value Valuation
Examples of Valuation Models
Net operating income (NOI)/purchase price
You would be willing to pay $144,522 for this property.
Discounted Cash Flows (DCF)
Employee Share Options
Adjusted Replacement Cost
Illustrations of Fair Value Disclosures: Reliability Assessment
Review Question Answers and Rationales
Appendix - Walt Disney Disclosures
Fair Value Hierarchy: The priority of valuation techniques to be used to determine fair value into three broad levels.
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