ASC 820: Fair Value Measurements

Fair value is not what an asset is worth to you. It’s what knowledgeable market participants would pay or accept in an orderly transaction at a specific point in time.

The objective is to measure an exit price that reflects current market conditions, not management’s intentions or the asset’s unique value to a particular entity.

Applying that principle requires judgment. Some assets trade in active markets with readily observable prices, while others require significant estimates because market information is limited or unavailable. Determining the appropriate valuation technique, identifying market-based assumptions, and assessing the reliability of available inputs often become the focus of professional debate, even though the underlying objective remains the same.

At this point, you understand the economic substance that ASC 820 is trying to capture. Everything that follows is simply the framework used to estimate a market-based exit price as faithfully and consistently as possible.