ASC 820 fair value measurement

What does ASC 820 cover?

ASC 820 applies whenever another topic requires or permits fair value, or disclosure of it: for example derivatives under ASC 815, equity securities under ASC 321, assets and liabilities acquired in a business combination under ASC 805, and impairment tests under ASC 350. It does not decide when fair value is used, and it does not apply to share-based payment under ASC 718 or to measurements that resemble fair value but are not, such as net realizable value for inventory. See ASC 815 derivatives and hedging and ASC 805 business combinations.

How does ASC 820 define fair value?

• An exit price: what the company would receive to sell the asset or pay to transfer the liability, not what it paid.
• Principal or most advantageous market: the market with the greatest volume and activity for the item, or failing that, the one giving the best net amount. Transaction costs are not deducted from fair value; transportation costs are. See IFRS 13 fair value, which works through an asset traded in two markets.
• Market participant assumptions, not the company's own intentions.
• Highest and best use for nonfinancial assets: physically possible, legally permissible and financially feasible.
• Nonperformance risk: a liability's fair value includes the company's own credit risk.

What is the ASC 820 fair value hierarchy?

A measurement is classified by the lowest-level input that is significant to it as a whole. Level 1 prices are used without adjustment except in limited cases, and a blockage discount for holding a large position is not allowed. The hierarchy ranks inputs, not techniques: market, income and cost approaches can each produce Level 2 or Level 3 measurements. See fair value levels in bank accounts.

What is the NAV practical expedient?

An investment in a fund that calculates net asset value per share consistently with the measurement principles of investment companies, such as a private equity, hedge or real estate fund, can be measured at that NAV without adjustment, unless it is probable the investment will be sold for a different amount. Investments measured this way are left out of the three levels but disclosed so that the totals reconcile, with information on redemption terms and unfunded commitments. IFRS 13 has no equivalent.

ASC 820 in practice: a Level 3 roll-forward

A public company holds private company stock and other investments measured at fair value using unobservable inputs. Its disclosure of Level 3 movements for the year, in thousands of dollars, is:

The roll-forward separates what changed through trading, through remeasurement and through reclassification: an investment moves into Level 3 when an observable price it relied on disappears, and out when one becomes available. Alongside it, public business entities disclose the valuation techniques, the significant unobservable inputs with their range and weighted average, and the unrealized gains for the period on Level 3 items still held. Nonpublic entities can skip the full roll-forward, but disclose purchases, issues and transfers into and out of Level 3. See goodwill impairment under ASC 350, where fair value is usually Level 3.

How are contractual sale restrictions treated?

ASU 2022-03 clarified that a contractual restriction on selling an equity security, such as an underwriter's lockup, belongs to the holder, not the security, so it is not reflected in fair value or recognized separately, while the restriction is disclosed. ASU 2026-03, issued in September 2026, carves out investment companies within ASC 946: they must reflect such restrictions in fair value and disclose the discount. It applies to annual periods beginning after December 15, 2027, prospectively, with early adoption permitted.

What must be disclosed under ASC 820?

For each class of assets and liabilities measured at fair value, recurring or nonrecurring: the fair value, its level in the hierarchy, the valuation techniques and inputs for Levels 2 and 3, and the Level 3 information above, with less required of nonpublic entities. For nonrecurring measurements, such as an impaired asset, the reason for the measurement is disclosed too. Fair values of financial instruments not carried at fair value are disclosed under ASC 825 by public business entities.

How does ASC 820 compare with IFRS 13?

The FASB and IASB developed them together, so the definition, the market rules, highest and best use and the three levels are the same. Differences include the NAV practical expedient, which only US GAAP has; disclosure relief for nonpublic entities, which IFRS 13 itself does not give, although IFRS 19 reduces it for eligible subsidiaries from 2027; and day-one gains, which US GAAP generally allows when fair value differs from the transaction price while IFRS 9 allows them only when fair value is evidenced by a Level 1 price or observable inputs. See IFRS 13 fair value measurement and IFRS vs US GAAP key differences.

This guide is general information. It is not tax or legal advice for your situation.