This free, guided checker walks your finance team through the key decision points for ASC 820 Fair Value Measurement Hierarchy. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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ASC 820-10-35-54B permits certain investments in investment companies (e.g. hedge funds, private equity funds) to be measured at NAV per share as a practical expedient. Investments measured at NAV are not categorized within the fair value hierarchy.
Measured at NAV under the practical expedient; not categorized within the hierarchy.
Official guidance: FASB Accounting Standards Codification
A Level 1 input is a quoted price, without adjustment, in an active market for the identical asset or liability that the entity can access at the measurement date. An active market has transactions with sufficient frequency and volume to provide ongoing pricing information.
A quoted price is available; determine whether it is applied directly or through an alternative pricing method before concluding the hierarchy level (ASC 820-10-35-41C).
Official guidance: FASB Accounting Standards Codification
This is the narrow practical expedient in ASC 820-10-35-41C: when an entity holds a large number of similar instruments and the quoted price is available but not readily accessible for each one, it may measure fair value using an alternative method such as matrix pricing. Doing so moves the measurement out of Level 1 and into Level 2 because it does not use the quoted price without adjustment. Applying a quoted price directly to an identical instrument that trades in an active market remains Level 1.
Using an alternative pricing method as a practical expedient results in a Level 2 categorization rather than Level 1 (ASC 820-10-35-41C). The unadjusted quoted price is applied directly, so the measurement is categorized within Level 1 (ASC 820-10-35-40).
Official guidance: FASB Accounting Standards Codification
Quoted prices for similar items in active markets, and quoted prices for identical or similar items in markets that are not active, are Level 2 inputs. They are observable but may require adjustment for condition, location, or comparability.
Use the interactive tool above to see how this applies to your situation.
Official guidance: FASB Accounting Standards Codification
Level 2 inputs also include observable inputs other than quoted prices and inputs derived principally from, or corroborated by, observable market data for substantially the full term of the asset or liability.
At least one input significant to the entire measurement is unobservable; identify the valuation approach before finalizing the Level 3 conclusion (ASC 820-10-35-52).
Official guidance: FASB Accounting Standards Codification
A measurement is categorized in its entirety at the lowest level input that is significant to the entire measurement. An adjustment to a Level 2 input that is significant and based on unobservable data moves the measurement to Level 3.
A significant unobservable adjustment drives the measurement; identify the valuation approach before finalizing the Level 3 conclusion (ASC 820-10-35-52). Level 2 measurement - significant inputs are observable directly or indirectly.
Official guidance: FASB Accounting Standards Codification
ASC 820-10-35-24A requires selecting valuation techniques consistent with the market, income, or cost approach that are appropriate in the circumstances and that maximize observable inputs. Identifying the approach fixes which unobservable inputs must be supported and disclosed for a recurring Level 3 measurement. Using multiple approaches is permitted; when the indications diverge, evaluate the reasons and select the point within the range most representative of fair value rather than defaulting to a simple average.
Significant unobservable inputs in the income-approach model drive the measurement, so it is categorized within Level 3 (ASC 820-10-35-52). Significant unobservable adjustments to the comparable data drive the measurement, so it is categorized within Level 3 (ASC 820-10-35-52). Significant unobservable obsolescence and replacement-cost assumptions drive the measurement, so it is categorized within Level 3 (ASC 820-10-35-52).
Official guidance: FASB Accounting Standards Codification
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