Report Fin Assets & Liab @ Fair Value

Fair Value & Option to Report Fin Assets & Liab @ Fair Value

Recognize various items @ fair value:

• Trading Securities or Available-For-Sale or Market-to-Market
• Investments in equity securities (business combination)
• Impairment losses (= reduction in carrying value of asset)
• All derivatives are reported @ fair value

Exceptions that are not qualify for FV:

• Pension, post-employment benefits
• Financial Equity Instruments 
• Share based pmts and stock options

Qualify for the Fair Value election:

• Most investments: Available-for-sale w unrealized gains/losses, held to maturity securities (from amortized cost)
• Firm commitments, like forward exchange contracts, foreign currency, etc.
• Unrealized gains/losses are reported in income
• FV = the price that would be received to sell an asset or paid to transfer a liab in an orderly transaction b/w market participants @ measurement date

3 valuation techniques: MIC

Market Approach - Market transactions

Income Approach - Revenue, cost savings, earnings, etc.

Cost Approach - replacement cost

3 levels of inputs for valuation:

Level 1 - most reliable (observable data from actual market)

Level 2 - observable but not identical assets/liab

Level 3 - unobservable data

Disclosures - consistency & comparability in FV measurement

Using Cash Flow info & PV in accounting measurements:

• Risk - probability to receive or pay the cash
• Timing - pmts are expected to be received
• IR - Market rates 
• Amount of cash flows:
  • Traditional Approach - most likely cash flow amounts
  • Expected Approach - weighted average