FAR - FASB - Fair Value Framework - Introduction & Definitions

Question 1

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

Answer 1

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.

Question 2

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

Answer 2

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 no compelled, to transact for the asset or liability.

Question 3

Define “fair value” (for accounting purposes).

Answer 3

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.