Fair Value .
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• Fair Value
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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
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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:
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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.https://store.theartofservice.com/the-fair-value-toolkit.html
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.https://store.theartofservice.com/the-fair-value-toolkit.html
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:
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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.[http://www.ivsc.org/pubs/exp_
drafts/ivs2.pdf Exposure Draft of Proposed Revised International
Valuation Standard 2 - Bases Other than Market Value, June, 2006]
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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.
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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.
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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
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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:
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Fair price - Fair value measurements (US markets)
1 The resulting fair value estimate would then be classified in Level Two or Level Three.
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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.
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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
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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
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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. https://store.theartofservice.com/the-fair-value-toolkit.html
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:
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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
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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 2009. 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.”
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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.http://www.thecaq.org/newsroom/pdfs/20090213CAQCIICFACongress
FairValueletter.pdf
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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.http://www.marketwatch.com
/story/mark-markets-junk-could-become-treasurehttps://store.theartofservice.com/the-fair-value-toolkit.html
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.[http://www.bloomberg.com/news/2012-05-02/mark-to-market-accounts-
signal-caution-for-investors.html Mark to market accounts
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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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