Fair Value is an accounting term that was first defined by the Securities and Exchange Commission (SEC). The Fair Value of an asset, according to GAAP, is the price at which it might be bought or sold in a current transaction between interested parties, excluding a liquidation. The Fair Value of an obligation, on the other hand, is the amount that the responsibility might be incurred or paid in a current transaction between willing parties, other than in a liquidation.
A stated market price in an active market, if available, is the greatest evidence of Fair Value and should be utilized as the measurement’s foundation. Preparers should estimate Fair Value using the best information available in the circumstances if a reported market price is not available. Quoted market values are often unavailable in many situations. As a result, estimating Fair Value is frequently challenging.