Lesson details
- Estimated study time
- 110 min
Learning objectives (3)
Topic 820 answers how to measure fair value when another Topic requires or permits it. It does not decide whether a bond is trading, whether private shares use the measurement alternative, or whether an investor has significant influence.
Read the input inventory, not the asset label
Level 1 uses unadjusted quoted prices in active markets for identical items available to the entity at the measurement date. Other observable inputs, such as quoted prices for similar instruments or observable yield curves, can support Level 2 within the applicable guidance. A significant unobservable input moves the measurement to Level 3. Classify the whole measurement by its lowest-level significant input.
Level 3 does not mean low-quality asset, failed valuation, or inevitable loss. It signals that significant inputs are unobservable and therefore heightens the need to document technique, assumptions, calibration, controls, uncertainty, and disclosure. Conversely, a number copied from a screen is not automatically Level 1 unless the identical-instrument and active-market conditions are met.
The July 2026 proposal concerning specified investment-company equity securities with contractual sale restrictions is narrow and not current GAAP. Do not generalize it to Linden Peak's operating-company examples.
Release one security at a time
For every holding, tie custody and units, instrument scope, classification or influence, opening basis, current activity, amortized cost, allowance, fair value, earnings, OCI/AOCI, sales or transfers, ending carrying amount, hierarchy level, disclosures, and open exceptions. Then reconcile the sum to the general ledger and statement captions.
Exit check
Sign the close only when every numeric input and judgment has an evidence owner, date, and review state. A recomputed workbook can prove its formulas and internal bridges. It cannot prove market accessibility, input observability, credit quality, significant influence, election validity, or disclosure completeness.