Fair Value

Stock valuation - Fundamental criteria (fair value) 1 In July 2010, a Delaware court ruled on appropriate inputs to use in discounted cash flow analysis in a dispute between shareholders and a company over the proper fair value of the stock

Fair price - Fair value vs market price 1 There are two schools of thought about the relation between the market price and fair value in any kind of market, but especially with regard to tradable assets:

Fair price - Fair value vs market price 1 * The efficient market hypothesis asserts that, in a well organized, reasonably transparent market, the market price is generally equal to or close to the fair value, as investors react quickly to incorporate new information about relative scarcity, utility, or potential returns in their bids; see also Rational pricing.

Fair price - Fair value vs market price 1 * Behavioral finance asserts that the market price often diverges from fair value because of various, common cognitive biases among buyers or sellers. However, even proponents of behavioral finance generally acknowledge that behavioral anomalies that may cause such a divergence often do so in ways that are unpredictable, chaotic, or otherwise difficult to capture in a sustainably profitable trading strategy, especially when accounting for transaction costs.

Fair price - Fair value vs market value 1 The latest edition of International Valuation Standards Committee|International Valuation Standards (IVS 2007), clearly distinguishes between fair value, as defined in the IFRS, and market value, as defined in the IVS:

Fair price - Fair value vs market value 1 Market Value requires this element of Special Value to be disregarded, but it forms part of the assessment of Fair Value.[ /ivs2.pdf Exposure Draft of Proposed Revised International Valuation Standard 2 - Bases Other than Market Value, June, 2006]

Fair price - Fair value measurements (US markets) 1 The goal of this framework is to eliminate the inconsistencies between balance sheet (historical cost) numbers and income statement (fair value) numbers.

Fair price - Fair value measurements (US markets) 1 On the other side of the balance sheet the fair value of a liability is the amount at which that liability could be incurred or settled in a current transaction.

Fair price - Fair value measurements (US markets) 1 Topic 820 emphasizes that assumptions used to estimate fair value should be from the perspective of an unrelated market participant

Fair price - Fair value measurements (US markets) 1 The framework uses 3-level fair value hierarchy to reflect the level of judgment involved in estimating fair values. The hierarchy is broken down into three levels:

Fair price - Fair value measurements (US markets) 1 The resulting fair value estimate would then be classified in Level Two or Level Three.

Fair price - Fair value measurements (US markets) 1 The third situation exists when no active or less-active markets exist for similar assets and liabilities, but some observable market data is sufficiently applicable to the reported items to allow the fair values to be estimated.

Fair price - Fair value measurements (US markets) 1 Notably, FASB indicates that assumptions enter into models that use Level 2 inputs, a condition that reduces the precision of the outputs (estimated fair values), but nonetheless produces reliable numbers that are representationally faithful, verifiable and neutral

Fair price - Fair value measurements (US markets) 1 Despite being “assumptions about assumptions,” Level 3 inputs can provide useful information about fair values (and thus future cash flows) when they are generated legitimately and with best efforts, without any attempt to bias users’ decisions.Slee, R

Fair price - Fair value measurements (US markets) 1 The FASB, after extensive discussions, has concluded that fair value is the most relevant measure for financial instruments. In its deliberations of Statement 133, the FASB revisited that issue and again renewed its commitment to eventually measuring all financial instruments at fair value.

Fair value 1 In accountancy|accounting and economics, 'fair value' is a rational and unbiased Prediction|estimate of the potential market price of a good, service, or asset. It takes into account such objective factors as:

Fair value 1 If the owners wanted to put a fair value measurement on the kitchen it would be a subjective estimate because there is no active market for such items or items similar to this one

Center for Audit Quality - Fair value accounting 1 The CAQ strongly defended fair value (or mark-to-market) accounting standards against calls for suspending the practice in the aftermath of the economic crisis in 2008 and CAQ Executive Director Cindy Fornelli sent a September 2008 letter to members of Congress stating that proposals to suspend fair value “are not in the best interest of investors or the capital markets and should be rejected.”

Center for Audit Quality - Fair value accounting 1 The CAQ collaborated with investor groups, including the Council of Institutional Investors, CFA Institute and Consumer Federation of America, to oppose calls for suspending fair value accounting. In a joint letter in February 2009, the four organizations applauded Congressional efforts to restore investor confidence in the U.S. capital markets, but cautioned against a retreat from fair value. s/ CAQCIICFACongressFairValu eletter.pdf

Center for Audit Quality - Fair value accounting 1 In March 2009, Fornelli urged members of the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises to reject calls for suspending fair value accounting during a March 2009 hearing. /mark-markets-junk-could-become- treasure

Fair value accounting 1 Fair value accounting has been a part of Generally Accepted Accounting Principles (United States)|Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and is now regarded as the gold standard in some circles.[ /mark-to-market-accounts- signal-caution-for-investors.html Mark to market accounts

International Financial Reporting Standards requirements - Fair value 1 Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction (IFRS1 App A).

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