CPA Accounting: Chapter 29 — Fair Value Measurement

1. Characteristics of Market Participants ・Market participants refer to independent, knowledgeable, willing, and able buyers and sellers—engaged in transactions involving the relevant asset or liability—in the principal market (or, if no principal market exists, the most advantageous market) for that asset or liability. ・Market participants must possess the following characteristics: 1. Independence—i.e., no related-party relationship exists (however, if an enterprise has evidence demonstrating that a related-party transaction was conducted on market terms, such a transaction may be treated as one between market participants). 2. Knowledgeability—i.e., possessing reasonable understanding of the relevant asset or liability and the transaction, based on information reasonably available. 3. Capacity and willingness to transact regarding the relevant asset or liability—not under duress or any other coercive circumstances. 2. Identification of Market Participants ・When identifying market participants, an enterprise shall, at a minimum, consider the following factors: 1. The relevant asset or liability being measured. 2. The principal market for that asset or liability (or, if no principal market exists, the most advantageous market). 3. The market participants with whom the enterprise would transact in the principal market or the most advantageous market. 3. Application of Market Participants ・An enterprise measuring the fair value of a relevant asset or liability shall determine that fair value based on transactions between market participants. ・An enterprise shall measure the fair value of the relevant asset or liability from the perspective of market participants—not considering its own intentions or ability to hold the asset, settle the liability, or otherwise fulfill the liability. Section 2: Requirements for Fair Value Measurement I. Initial Fair Value Measurement ・In transactions where an enterprise acquires an asset or incurs a liability, the transaction price represents an ‘entry price’, whereas the fair value of the relevant asset or liability represents an ‘exit price’. ・In most cases, the entry price equals the exit price for the relevant asset or liability. ・However, when an enterprise initially measures the relevant asset or liability at fair value, the transaction price used to acquire the asset or incur the liability shall not be regarded as the fair value of that asset or liability in the following circumstances: 1. Transactions between related parties (except where evidence demonstrates they were executed on market terms). 2. Forced transactions—or transactions in which the seller of the asset (or transferor of the liability) is compelled to accept the transaction price. 3. The unit of account represented by the transaction price differs from the unit of account used for fair value measurement of the relevant asset or liability. 4. The transaction occurs in a market other than the principal market (or, if no principal market exists, the most advantageous market) for that asset or liability. ・Where an enterprise initially measures the relevant asset or liability at fair value and the transaction price differs from fair value, the difference between the two shall be accounted for in accordance with applicable accounting standards. If no specific guidance exists in those standards, the enterprise shall recognize the difference in profit or loss for the current period. II. Valuation Techniques ・An enterprise measuring the fair value of a relevant asset or liability shall employ valuation techniques appropriate to the current circumstances. ・Common valuation techniques include the market approach, income approach, and cost approach. ・If an active market with quoted prices exists for the relevant asset or liability, the enterprise shall give priority to using those quoted prices to determine fair value. ・Except in the case above, there is no prescribed hierarchy among the three valuation techniques; the enterprise may select one or more of them to determine fair value. ・When applying valuation techniques to estimate the fair value of a relevant asset or liability, the enterprise shall periodically calibrate its valuation models using observable market information.

Accounting Standard for Business Enterprises No. 39 — Fair Value Measurement (2014)

Article 17: Where other relevant accounting standards require or permit an enterprise to initially measure a relevant asset or liability at fair value—and the transaction price differs from fair value—the enterprise shall recognize the resulting gain or loss in profit or loss for the current period, unless other relevant accounting standards prescribe otherwise. Chapter VI: Valuation Techniques Article 18: An enterprise measuring the fair value of a relevant asset or liability shall adopt a valuation technique that is appropriate under current circumstances and supported by sufficient available data and other information. The purpose of using a valuation technique is to estimate the price at which market participants would sell an asset or transfer a liability in an orderly transaction under current market conditions at the measurement date. The primary valuation techniques used by an enterprise in measuring the fair value of a relevant asset or liability include the market approach, income approach, and cost approach. An enterprise shall apply a method consistent with one or more of these valuation techniques to measure fair value. Where multiple valuation techniques are employed, the enterprise shall assess the reasonableness of each resulting estimate and select the amount that best represents fair value under current circumstances. The market approach is a valuation technique that uses prices and other relevant market transaction information for identical or similar assets, liabilities, or combinations of assets and liabilities. The income approach is a valuation technique that converts future amounts into a single present value. The cost approach is a valuation technique that reflects the current amount required to replace the service capacity of the relevant asset (typically referred to as current replacement cost). Article 19: In applying valuation techniques, an enterprise shall give priority to relevant observable inputs. Unobservable inputs may be used only when relevant observable inputs are unavailable or impracticable to obtain. Inputs refer to assumptions used by market participants in pricing the relevant asset or liability, and include both observable and unobservable inputs. Observable inputs are inputs derived from market data. Such inputs reflect the assumptions market participants use when pricing the relevant asset or liability. Unobservable inputs are inputs not derived from market data. Such inputs shall be determined based on the best information available regarding the assumptions market participants would use when pricing the relevant asset or liability. Article 20: Where an enterprise uses the transaction price as the fair value at initial recognition—and subsequently applies a valuation technique involving unobservable inputs—the enterprise shall calibrate that valuation technique so that the initial measurement result equals the transaction price. Where an enterprise applies valuation techniques in subsequent fair value measurements—particularly those involving unobservable inputs—it shall ensure that the valuation technique reflects observable market data at the measurement date, such as prices for similar assets or liabilities. Article 21: Once selected, a valuation technique used for fair value measurement shall not be changed arbitrarily. However, a change in valuation technique—or in its application—is permitted where such change results in a measurement that is equally representative of, or more representative of, fair value under current circumstances. Such circumstances include, but are not limited to, the following: (1) Emergence of a new market; (2) Availability of new information; (3) Unavailability of previously used information; (4) Improvement of the valuation technique; and (5) Changes in market conditions.

Does H.B. Fuller (FUL) Trade Below Fair Value After New Debt?

Oct 14, 2026

H.B. Fuller shares fell 25.4% over three years following an $850 million debt issuance, though a DCF model suggests the stock remains 26% undervalued despite integration risks.