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2.3 Fair value scope exceptions
Publication date: 31 Mar 2022
us Fair value guide
ASC 820 does not apply to the following:
- Share-based payment transactions (see FV 2.3.1)
- Standards that require or permit measurements that are similar to fair value, but that are not intended to measure fair value (see FV 2.3.2), such as: (i) lower of cost or market (net realizable value) measurements in accordance with ASC 330 ; and (ii) transactions measured based on standalone selling price (under ASC 606)
- Accounting principles that address fair value measurements for purposes of lease classification or measurement in accordance with ASC 840 (see FV 2.3.3)
- Recognition and measurement of revenue from contracts with customers under ASC 606
- Recognition and measurement of gains and losses upon the derecognition of nonfinancial assets in accordance with ASC 610-20
2.3.1 Share-based payments
The fair value standard does not apply to share-based payments accounted for under ASC 718, Compensation—Stock Compensation. In addition to excluding transactions under ASC 718, the exception also extends to related interpretive guidance, such as ASC 505-50, Equity—Equity-Based Payments to Non-Employees.
2.3.2 Measurements similar to fair value
The fair value standard does not apply to measurements that are similar to fair value, but that are not fair value. These include:
- Under ASC 606, an entity is required to allocate consideration to the various elements in an arrangement based on their relative standalone selling prices. In practice, although the measurement principles contained in ASC 606 are meant to maximize the use of observable inputs, they may result in values that are substantially different from a measurement of fair value under ASC 820. This is because ASC 606 allows for the consideration of certain entity-specific factors that are not considered under ASC 820. ASC 820-10-15-2 excludes measurements from its scope that are similar to fair value but that are not intended to measure fair value, such as standalone selling price, which is the price at which an entity would sell a promised good or service separately to a customer.
- Lower of cost and net realizable value measurements in accordance with ASC 330, Inventory.
ASC 330 defines "net realizable value."
Definition from ASC Master Glossary
Net Realizable Value: Estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
2.3.2.1 Fair value measurements of alternative investments using NAV
There are different accounting requirements in US GAAP for measuring the fair value of investments in investment companies.
2.3.3 Lease accounting
Under US GAAP, the practicability exception in FV 2.4 does not apply to an acquisition by a not-for-profit entity that is required to be measured at fair value in accordance with ASC 805, regardless of whether those assets and liabilities are related to leases.
New guidance
The FASB issued ASU 2019-01 to amend ASC 842 for certain lessors (that are not manufacturers or dealers). ASC 840 allowed such lessors to use the cost of the underlying leased asset (subject to applicable volume or trade discounts) instead of fair value (as defined in ASC 820) when assessing lease classification and measuring the lease. Thus, qualifying lessors can capitalize acquisition and delivery costs associated with the underlying asset. Because fair value equals the qualifying lessor’s cost, no selling profit or loss is recognized at lease inception for sales-type and direct financing leases. The new leases standard did not carry forward this exception, but the new amendment reinstates the fair value exception for impacted lessors.
The amendments in ASU 2019-01 amend Topic 842. That Topic has different effective dates for fiscal years beginning after December 15, 2019, including interim periods within public business entities and entities other than public business entities. The effective date of those amendments is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years for any of the following: (a) public business entities, (b) not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded on an exchange or over-the-counter market, and (c) employee benefit plans that file with or furnish financial statements to the SEC. For all other entities, the effective date is for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early application is permitted.
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