Fair Value Adjustment

Definition

A change in an asset's recorded value to reflect what the market currently thinks it's worth. Sometimes this is realistic; sometimes it's a company admitting it made a terrible investment.

Example Usage

The investment portfolio received a fair value adjustment downward of $50 million as the tech stocks in the holdings collapsed.

Origin

Concept formalized in FASB Standards Topic 820 (Fair Value Measurement) in response to accounting scandals of the 2000s

Fun Fact

Fair value measurements can be based on observable market prices or on management's estimates—a distinction that creates plenty of room for optimistic accounting.

Source: FASB ASC 820 (Fair Value Measurement)

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