--- title: "What's \"Fair Value\" in an Accounting Context?" description: Machen McChesney provides business owners with Fair Value Measurements and Disclosures. This explains how companies should estimate the fair value of assets and liabilities by using available, quantifiable market-based data. image: https://info.machen.cpa/hubfs/fair-value-money-1133134425.jpeg --- [Family of Services](http://machenmcchesney.com/about-us/family-of-companies/)  |  [CPA & Business Advisory](http://machenmcchesney.com)  |  [Payroll, HR & Benefits](http://focuspaysolutions.com/)  |  [Wealth Management](http://machenmcchesney.com/services/financial-planning-and-wealth-mangement-services/) Auburn-Opelika (334) 887-7022 | Montgomery (334) 244-8900 [![mm-re-cobrand-fd-blues](https://info.machen.cpa/hs-fs/hubfs/mm-re-cobrand-fd-blues.png?width=279&height=100&name=mm-re-cobrand-fd-blues.png)](http://machenmcchesney.com) Search this site on Google Search Google Search this site on Google Search Google - [Client Portal](https://machenmcchesney.sharefile.com/Authentication/Login) - [1040 Electronic Organizer](https://www.my1040data.com/account/login/HT7902990) - [LinkedIn](https://www.linkedin.com/company/675439?trk=tyah&trkInfo=idx%3A1-1-1%2CtarId%3A1424436970395%2Ctas%3Amachen+mcchesney) - [Facebook](https://www.facebook.com/machenmcchesney) - [Google](https://plus.google.com/101356546927388458481) - [Twitter](https://twitter.com/machenmcchesney) - About Us - [Welcome](http://machenmcchesney.com/about-us/welcome/) - [Affiliations and Associations](http://machenmcchesney.com/about-us/affiliations-and-associations/) - [Community Events](http://machenmcchesney.com/about-us/community-events/) - [Family of Companies](http://machenmcchesney.com/about-us/family-of-companies/) - [History](http://machenmcchesney.com/about-us/firm-profile-history/) - [Mission and Values](http://machenmcchesney.com/about-us/mission-and-values/) - [Team Directory](http://machenmcchesney.com/about-us/team-directory/) - Services - [Accounting & Outsourcing](http://machenmcchesney.com/services/accounting-outsourcing/) - [Audit and Assurance Services](http://machenmcchesney.com/services/audit-assurance/) - [Business Advisory Services](http://machenmcchesney.com/services/business-advisory/) - [Business Valuation Services](http://machenmcchesney.com/services/business-valuation-services/) - [Family Office Services](http://machenmcchesney.com/services/family-care/) - [Financial Planning & Wealth Mangement Services](http://machenmcchesney.com/services/financial-planning-and-wealth-mangement-services/) - [Individual Services](http://machenmcchesney.com/services/individuals/) - [Taxation](http://machenmcchesney.com/services/taxation/) - Who We Serve - [Construction & Real Estate](http://machenmcchesney.com/industries/construction-real-estate/) - [Credit Unions](http://machenmcchesney.com/industries/credit-unions/) - [Government & Not-For-Profits](http://machenmcchesney.com/industries/governmental-not-for-profit/) - [Healthcare & Professional Services](http://machenmcchesney.com/industries/healthcare-and-professional-services/) - [Hospitality, Restaurant & Retail](http://machenmcchesney.com/industries/hospitality-restaurant-retail/) - [Manufacturing, Distribution & Automotive](http://machenmcchesney.com/industries/manufacturing-distribution-automotive/) - [Success Stories](http://machenmcchesney.com/success-stories) - Resources - [Blog](https://info.machenmcchesney.com/blog) - [E-Newsletter Archive](http://machenmcchesney.com/resources/e-newsletter-archive/) - [Financial Calculators](http://machenmcchesney.com/resources/financial-calculators/) - [Financial Terms Glossary](http://machenmcchesney.com/resources/financial-terms-glossary/) - [Helpful Articles](http://machenmcchesney.com/resources/newsletter/) - [Tax Calendar](http://machenmcchesney.com/resources/tax-calendar/) - [Tax Links](http://machenmcchesney.com/resources/tax-links/) - [Track Your Refund](http://machenmcchesney.com/resources/track-your-refund/) - [Sign Up for Our E-Newsletter](http://machenmcchesney.com/resources/e-newsletter/) - [Subscribe to Our Blog](http://machenmcchesney.com/resources/subscribe-to-the-machen-mcchesney-blog/) - News & Events - [Press Releases](http://machenmcchesney.com/news-events/press-releases/) - [Upcoming Events](http://machenmcchesney.com/news-events/upcoming-events/) - Careers - [Our Culture](http://machenmcchesney.com/careers/culture/) - [Benefits](http://machenmcchesney.com/careers/benefits/) - [Our Stories](http://machenmcchesney.com/careers/our-stories/) - [Current Openings](http://machenmcchesney.com/careers/current-openings-send-resume/) - [Accounting Internship Opportunities](http://machenmcchesney.com/careers/students/) - Contact Us - [Auburn-Opelika Office](http://machenmcchesney.com/contact-us/contact-us-auburn-office/) - [Montgomery Office](http://machenmcchesney.com/contact-us/contact-us-montgomery-office/) # Returning Value Blog ## [What's "Fair Value" in an Accounting Context?](https://info.machen.cpa/blog/whats-fair-value-in-an-accounting-context) Posted by [Melissa Motley, CPA](https://info.machen.cpa/blog/author/melissa-motley-cpa) on May 21, 2021, 8:50:07 AM - [Tweet](https://twitter.com/share) [![fair-value-money-1133134425](https://info.machen.cpa/hs-fs/hubfs/fair-value-money-1133134425.jpeg?width=1024&name=fair-value-money-1133134425.jpeg)](https://info.machenmcchesney.com/blog/whats-fair-value-in-an-accounting-context)In recent years, the accounting rules for certain balance sheet items have transitioned from historical cost to “fair value.” Examples of assets that may currently be reported at fair value are asset retirement obligations, derivatives, and intangible assets acquired in a business combination. Though fair value may better align your company’s financial statements with today’s market values, estimating fair value may require subjective judgment. **GAAP definition** Under U.S. Generally Accepted Accounting Principles (GAAP), fair value is “the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.” Accounting Standards Codification Topic 820, *Fair Value Measurements and Disclosures*, explains how companies should estimate the fair value of assets and liabilities by using available, quantifiable market-based data. Topic 820 provides the following three-tier valuation hierarchy for valuation inputs: 1. Quoted prices in active markets for *identical* assets or liabilities, 2. Information based on publicly quoted prices, including older prices from inactive markets and prices of comparable stocks, and 3. Nonpublic information and management’s estimates. Fair value measurements, especially those based on the third level of inputs, may involve a high degree of subjectivity, making them susceptible to misstatement. Therefore, these estimates usually require more auditor focus. **Auditing estimates** Auditing standards generally require auditors to select one or a combination of the following approaches to substantively test fair value measurements: **Test management’s process.** Auditors evaluate the reasonableness and consistency of management’s assumptions and test whether the underlying data is complete, accurate, and relevant. **Develop an independent estimate.** Using management’s assumptions (or alternate assumptions), auditors come up with an estimate to compare to what’s reported on the internally prepared financial statements. **Review subsequent events or transactions.** The reasonableness of fair value estimates can be gauged by looking at events or transactions that happen after the balance sheet date but before the date of the auditor’s report. **Outside input** Measuring fair value is outside the comfort zone of most in-house accounting personnel. Fortunately, an outside valuation expert can provide objective, market-based evidence to support the fair value of assets and liabilities.  **For more information on the above article or any [audit & assurance services](https://machenmcchesney.com/services/audit-assurance/), contact Melissa Motley, CPA, at (334) 887-7022 or by leaving us a message below.**  Topics: [Audit & Assurance](https://info.machen.cpa/blog/topic/audit-assurance) Search this site on Google Search Google ### Recent Posts ### Subscribe to Blog ### Posts by Category - [Business Tax (356)](https://info.machen.cpa/blog/topic/business-tax) - [Business Advisory (239)](https://info.machen.cpa/blog/topic/business-advisory) - [Payroll, HR & Benefits (124)](https://info.machen.cpa/blog/topic/payroll-hr-benefits) - [Audit & Assurance (113)](https://info.machen.cpa/blog/topic/audit-assurance) - [Accounting & Outsourcing (81)](https://info.machen.cpa/blog/topic/accounting-outsourcing) - [Individual Tax (75)](https://info.machen.cpa/blog/topic/individual-tax) - [Tax Planning (33)](https://info.machen.cpa/blog/topic/tax-planning) - [Tax Updates (25)](https://info.machen.cpa/blog/topic/tax-updates) - [Retirement & Wealth Management Planning (18)](https://info.machen.cpa/blog/topic/retirement-wealth-management-planning) - [Taxation (15)](https://info.machen.cpa/blog/topic/taxation) - [Alerts (13)](https://info.machen.cpa/blog/topic/alerts) - [Business Valuation (11)](https://info.machen.cpa/blog/topic/business-valuation) - [News & Events (11)](https://info.machen.cpa/blog/topic/news-events) - [Tax News (11)](https://info.machen.cpa/blog/topic/tax-news) - [Individual Tax Planning (10)](https://info.machen.cpa/blog/topic/individual-tax-planning) - [Not For Profit (10)](https://info.machen.cpa/blog/topic/not-for-profit) - [Retirement Planning (9)](https://info.machen.cpa/blog/topic/retirement-planning) - [Estate Planning (8)](https://info.machen.cpa/blog/topic/estate-planning) - [Manufacturing Industry Insights (7)](https://info.machen.cpa/blog/topic/manufacturing-industry-insights) - [Individuals (1)](https://info.machen.cpa/blog/topic/individuals) - [Insider (1)](https://info.machen.cpa/blog/topic/insider) - [Professional Standard News (1)](https://info.machen.cpa/blog/topic/professional-standard-news) see all [![Returning\_Value](https://info.machen.cpa/hs-fs/file-2504250850-jpg/Machen-Blog-Image/Returning_Value.jpg)](http://machenmcchesney.com/about-us/mission-and-values/) - [![AICPA](https://machenmcchesney.com/img/logos/aicpa.jpg)](https://www.aicpa-cima.com/) - [![NACVA](https://machenmcchesney.com/img/logos/nacva.jpg)](http://www.nacva.com/) - ![2026 INSIDE Public Accounting Top 400](https://machenmcchesney.com/img/2026-ipa-top-400.jpg) - ![2026 Best of Auburn-Opelika](https://machenmcchesney.com/img/2026-best-of-auburn-opelika.jpg) - [![2025 Best of OA](https://machenmcchesney.com/img/2025-best-of-oa.jpg)](https://oanow.com/exclusive/readerschoice/ballot-2025/) - ![2026 Best of OA Winner](https://machenmcchesney.com/img/2026-best-of-oa-winner.jpg) - [![2025 Accounting Today Regional Leaders](https://machenmcchesney.com/img/2025-accounting-today-regional-leaders.jpg)](https://www.accountingtoday.com/) - [![ClearlyRated Best of Accounting](https://machenmcchesney.com/img/2024-best-of-accounting.jpg)](https://www.clearlyrated.com/accounting) - [![ClearlyRated Best of Accounting Employee](https://machenmcchesney.com/img/2024-best-of-accounting-employee.jpg)](https://www.clearlyrated.com/accounting) 1820 East University Drive, Auburn, AL 36830 | Tel: (334) 887-7022 | Fax: (334) 887-7221 1761 Taliaferro Trail, Montgomery, AL 36117 | Tel: (334) 244-8900 | Fax: (334) 364-0927 † This is not a CPA firm. \* Assurance, attest, and audit services provided by Frazier & Deeter, LLC. “Frazier & Deeter” is the brand name under which Frazier & Deeter, LLC\* and Frazier & Deeter Advisory, LLC† and its subsidiary entities provide professional services. Frazier & Deeter, LLC\* and Frazier & Deeter Advisory, LLC (and its subsidiary entities)† practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. Frazier & Deeter, LLC\* is a U.S. licensed independent public accounting firm that provides attest services to its clients. Frazier & Deeter Advisory, LLC† and its subsidiary entities provide tax and business consulting services to their clients. Frazier & Deeter Advisory, LLC† and its subsidiary entities are not licensed U.S. CPA firms. - [LinkedIn](https://www.linkedin.com/company/675439?trk=tyah&trkInfo=idx%3A1-1-1%2CtarId%3A1424436970395%2Ctas%3Amachen+mcchesney) - [Facebook](https://www.facebook.com/machenmcchesney) - [Google](https://plus.google.com/101356546927388458481) - [Twitter](https://twitter.com/machenmcchesney) [Powered by Strategic 7 Marketing](https://strategicseven.com)