008 Fair Value Framework

Question 1

For purposes of the fair value definition, what are the assumed characteristics of market participants?

Answer 1

Buyers and sellers that are: 1 Independent of the reporting entity; 2 Acting in their economic best interest; 3 Knowledgeable of the asset or liability and the transaction involved; 4 Able and willing, but not compelled, to transact for the asset or liability.

Question 2

Define “fair value (for accounting purposes)”.

Answer 2

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 3

What are the major purposes intended to be accomplished by the fair value framework?

Answer 3

To provide a framework for the use of fair value in GAAP so as to: 1 Achieve increased consistency and comparability in fair value measurements; and 2 Expand disclosure when fair value measurements are used.