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Does US GAAP distinguish between fair values that are readily determinable from current market prices versus...

Does US GAAP distinguish between fair values that are readily determinable from current market prices versus those needing to be calculated based on the company's own assumptions?

Explain how a user will know about the reliability of the inputs used to determine fair value.

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Answer #1

Yes, GAAP does distinguish between fair values that are readily determinable from a securities exchange versus those needing to be calculated based on the company’s own assumptions.

In fact GAAP makes a distinction between the three levels of inputs to fair value determination. Level 1 is the level of readily observable fair values, level 2 is the level of inputs that consists of other observable amounts and level 3 inputs are those inputs that are unobservable. This level also includes the company’s own assumptions.

A user will know about the reliability of the inputs used to determine fair value as companies are required to provide a detailed disclosure about their use of fair value measurements.

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