Table of Contents
Chapter 1 - The Evolution of Fair Value - Section 1................................................................................ 7
1.1 Historical Cost........................................................................................................................................................ 7
1.2 The Rising Tide of Fair Value:
The S&L Crisis....................................................................................... 9
Chapter 1 - Section 1 Review Questions........................................................................................................... 12
Chapter 1 - The Evolution of Fair Value - Section 2............................................................................. 13
1.3 A New Sense of Urgency: The
Enron Crisis........................................................................................... 13
1.4 ASC 820: Fair Value
Measurements and Disclosures.................................................................... 14
Chapter 1 - Section 2 Review Questions........................................................................................................... 16
Chapter 2 - Measurement - Section 3.................................................................................................................. 18
2.1 Definition of Fair Value................................................................................................................................... 18
Chapter 2 - Section 3 Review Questions........................................................................................................... 20
Chapter 2 - Measurement - Section 4.................................................................................................................. 22
2.2 Fair Value Framework...................................................................................................................................... 22
2.2.1 The price.................................................................................................................................................................. 22
2.2.2 The
principal (or most Advantageous) market................................................................................................. 23
2.2.3 Market
participants............................................................................................................................................... 24
2.2.4
Attributes of the asset or liability....................................................................................................................... 24
2.2.5 “Highest
and best use”......................................................................................................................................... 25
2.2.6 Unit of
account....................................................................................................................................................... 26
2.3 Fair Value at Initial
Recognition............................................................................................................ 26
Chapter 2 - Section 4 Review Questions........................................................................................................... 29
Chapter 3 - Valuation Techniques & Inputs -
Section 5....................................................................... 32
3.1 Valuation Techniques....................................................................................................................................... 32
3.2 Valuation Inputs................................................................................................................................................... 35
Chapter 3 - Section 5 Review Questions........................................................................................................... 37
Chapter 3 - Valuation Techniques & Inputs -
Section 6....................................................................... 39
3.3 Fair Value Hierarchy........................................................................................................................................ 39
3.3.1 Level 1
Inputs.......................................................................................................................................................... 39
3.3.2 Level 2
Inputs.......................................................................................................................................................... 40
3.3.3 Level 3
Inputs.......................................................................................................................................................... 40
3.4 Pricing Services and Broker
Quotes...................................................................................................... 41
3.5 Bid-Ask Prices........................................................................................................................................................... 42
Chapter 3 - Section 6 Review Questions........................................................................................................... 43
Chapter 4 - Auditing Fair Value Measurements and
Disclosures - Section 7..................... 45
4.1 ASC 820 Disclosures.............................................................................................................................................. 45
4.1.1
Recurring fair value measurements.................................................................................................................... 46
4.1.2
Non-recurring fair value measurements............................................................................................................ 47
Chapter 4 - Section 7 Review Questions........................................................................................................... 50
Chapter 4 - Auditing Fair Value Measurements and
Disclosures - Section 8..................... 51
4.2 SAS No. 101, Auditing Fair
Value Measurements and Disclosures....................................... 51
4.2.1
Understanding the entity’s process for determining fair value
measurements and disclosures and the relevant controls, and assessing risk....................................................................................................................................................................... 51
4.2.2
Evaluating conformity of fair value measurements and disclosures with
GAAP...................................... 52
4.2.3 Testing
the entity’s fair value measurements and disclosures....................................................................... 53
4.2.4 Testing
management’s significant assumptions, the valuation model, and the underlying
data........... 54
4.2.5 Auditing
Disclosures about Fair Values........................................................................................................... 56
Chapter 4 - Section 8 Review Questions........................................................................................................... 58
Chapter 5 - The Fair Value Option - Section 9.............................................................................................. 61
5.1 Introducing the Fair Value
Option......................................................................................................... 61
5.2 ASC 825-10 Financial
Instruments: The Fair Value Option........................................................ 62
5.2.1 Scope........................................................................................................................................................................ 62
5.2.2 Excluded
items........................................................................................................................................................ 62
Chapter 5 - Section 9 Review Questions........................................................................................................... 64
Chapter 5 - The Fair Value Option - Section 10........................................................................................... 66
5.2.3
Accounting Election.............................................................................................................................................. 66
5.2.4 Timing....................................................................................................................................................................... 66
5.2.5
Accounting Impact................................................................................................................................................. 67
Chapter 5 - Section 10 Review Questions........................................................................................................ 70
Chapter 6 - The Fair Value Controversy - Section 11........................................................................... 72
6.1 The Great Recession of
2007-2009................................................................................................................ 72
6.3 The Critical Backlash at “Fair
Value”................................................................................................ 73
Chapter 6 - Section 11 Review Questions........................................................................................................ 78
Review Answers.................................................................................................................................................................. 80
Glossary................................................................................................................................................................................ 118
Index.......................................................................................................................................................................................... 121
Final Examination......................................................................................................................................................... 124
CPASelfstudy.com Course Evaluation.......................................................................................................... 136