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