FAR, Financial Accounting and Reporting

Sources for Fair Value Measurement

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's FAR lessons on Fair Value Measurement. The topic rests on ASC 820.

About this topic

Fair value is the price an asset would fetch in an ordinary sale today. ASC 820 is the rulebook for arriving at that price and for describing how it was reached.

So the Topic answers one question. Once another standard tells an entity to report something at fair value, exactly how is that fair value measured and disclosed? It is a measurement and disclosure standard, not a recognition standard.

Key points

Fair value is the exit price in an orderly transaction between market participants at the measurement date.
The fair value hierarchy has three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs), Level 3 (unobservable inputs).
The principal market is used when available; if not, the most advantageous market determines the price.
Fair value measurement uses the assumptions market participants would use, not entity-specific assumptions.

What the lessons cover

The definition: fair value is an exit price
Entry price versus exit price at initial recognition
The market: principal versus most advantageous (ASC 820-10-35-5)
The three valuation approaches (ASC 820-10-35-24A)
Highest and best use for nonfinancial assets
The fair value hierarchy (ASC 820-10-35-37)
Measuring liabilities and instruments in equity
Disclosures (ASC 820-10-50-2)

Authoritative references

ASC 820-10-20, the definition of fair value: the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
ASC 820-10-30-1, 30-3, 30-3A, 30-5 and 30-6, the transaction price as an entry price, the presumption that it equals fair value, the circumstances that rebut the presumption, and the recognition of day-one gains and losses in earnings.
ASC 820-10-35-2, 35-2B and 35-3, the exit-price measurement objective and the characteristics of the asset that market participants would price.
ASC 820-10-35-5, 35-6A and 35-6B, the principal market versus the most advantageous market, and access to the market at the measurement date.
ASC 820-10-35-9B and 35-9C, transaction costs as a characteristic of the transaction, and transport costs as a deduction because location is a characteristic of the asset.
ASC 820-10-35-10A through 35-10E, highest and best use: physically possible, legally permissible, and financially feasible, judged from the perspective of market participants.
ASC 820-10-35-16, 35-16BB and 35-17, a liability assumed transferred rather than settled, the quoted-price-for-the-asset approach, and the effect of the entity's own credit risk.
ASC 820-10-35-24A and 35-25, the three valuation approaches, and a change in technique only where it is equally or more representative of fair value.
ASC 820-10-35-36B through 35-37A, the fair value hierarchy: the level follows the inputs, never the technique.
ASC 820-10-35-40 through 35-44, Level 1 quoted prices for identical assets, the adjustment that moves a measurement lower, and the prohibition on a blockage factor.
ASC 820-10-35-47 and 35-48, Level 2 inputs: quoted prices in inactive markets, interest rates, yield curves, and credit spreads.
ASC 820-10-35-52, Level 3 unobservable inputs.
ASC 820-10-35-54B and 35-59, an investment measured using the net asset value per share practical expedient, which is not categorized in any level.
ASC 820-10-50-1C, the disclosure objective.
ASC 820-10-50-2, 50-2E, 50-2F and 50-2G, the recurring and nonrecurring disclosures, the Level 3 reconciliation, quantitative information on unobservable inputs, and transfers into and out of Level 3.
ASC 820-10-50-6A and 50-6B, disclosures for investments measured at net asset value, and for restrictions on sale.
ASC 820-10-55-3A and 55-3F, valuing a liability by the cash flows a market participant would receive from holding it as an asset, or by quoted prices for similar liabilities held as assets.
ASC 820-10-55-46, Example 5, the interest rate swap illustration.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.