Fair Value Measurements

Question 1

According to FASB, fair value is

Answer 1

An exit price.

“Fair value is 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.” Thus, fair value is an exit price.

Question 2

The decision to elect the fair value option (FVO)

Answer 2

Is irrevocable until the next election date, if any.

The decision to elect the FVO is final and cannot be revoked unless a new election date occurs. For example, an election date occurs when an entity recognizes an investment in equity securities with readily determinable fair values issued by another entity. A second election date occurs if the accounting changes because the investment later becomes subject to equity-method accounting.