ASC 820 Fair Value Measurement (US GAAP)
What It Is
ASC 820 (Accounting Standards Codification Topic 820: Fair Value Measurement) is the US Generally Accepted Accounting Principles (US GAAP) standard for fair value measurement, issued by the Financial Accounting Standards Board (FASB). It is the US GAAP equivalent of IFRS 13, and the two standards are substantially converged in their core definitions and approach.
ASC 820 applies to US-domiciled funds and fund managers preparing financial statements under US GAAP, including Delaware LPs, US-based limited liability companies, and funds registered under the Investment Company Act of 1940. Many of the world’s largest alternative investment funds are structured in Delaware and prepare US GAAP financial statements, making ASC 820 the operative accounting standard for their valuations.
Note: The source URL above links to a specific FASB Accounting Standards Update (ASU 2022-03) related to Topic 820. The core ASC 820 standard is available through FASB’s Accounting Standards Codification. This source note is based on publicly available descriptions; specific ASC 820 requirements should be verified with qualified accounting counsel.
The Level 1 / 2 / 3 Hierarchy Under ASC 820
The fair value input hierarchy under ASC 820 mirrors IFRS 13 closely:
Level 1 — Quoted prices in active markets for identical assets or liabilities. Most reliable; used for listed securities held in a portfolio.
Level 2 — Observable inputs other than Level 1 prices — for example, quoted prices for similar assets, observable yield curves, or credit spreads derived from active markets.
Level 3 — Unobservable inputs based on the fund’s own assumptions about what market participants would use. The majority of private equity, private credit, and real estate holdings are Level 3 under both ASC 820 and IFRS 13.
The standard requires maximising the use of observable inputs and minimising reliance on unobservable inputs.
ASU 2022-03 update: This specific update addressed fair value measurement of equity securities subject to contractual sale restrictions (e.g., lock-up periods on portfolio company shares following an IPO). It clarified that contractual restrictions on the sale of an equity security are not part of the unit of account for fair value measurement — meaning a lock-up on shares does not by itself reduce their quoted market price for accounting purposes. This has practical significance for PE fund exits involving public market securities with lock-up periods.
ASC 820 vs IFRS 13: Key Similarities and Differences
| Feature | ASC 820 | IFRS 13 |
|---|---|---|
| Fair value definition | Exit price in orderly transaction between market participants | Exit price in orderly transaction between market participants |
| Level 1/2/3 hierarchy | Yes | Yes |
| Principal market | Highest and best use for non-financial assets | Same |
| Disclosure requirements | Similar in scope | Similar in scope |
| Effective scope | US GAAP reporters | IFRS reporters |
The two standards have been substantially converged through joint FASB/IASB projects. In practice, the Level 1/2/3 hierarchy works identically for fund valuation purposes under both standards.
Why It Matters for Alternative Fund Operations
US-domiciled funds: Many alternative investment funds, particularly PE funds, are structured in Delaware and prepare US GAAP financial statements. For these funds, ASC 820 is the operative accounting standard — not IFRS 13. Operations teams working with US-domiciled funds should understand that the Level 1/2/3 framework they use is rooted in ASC 820 rather than IFRS 13, even though the practical content is nearly identical.
Valuation risk: The valuation risk discussion of Level 2 and Level 3 inputs applies equally under ASC 820. The subjectivity, smoothing risk, and governance concerns are identical regardless of which standard applies formally.
NAV production: For NAV production in US GAAP funds, the investment valuation process must support ASC 820 disclosures in the audited financial statements — including a roll-forward of Level 3 assets and disclosures about valuation techniques and significant inputs.
NAV concepts: For funds reporting under US GAAP, the NAV per unit in LP capital account statements ultimately derives from ASC 820 fair values for the portfolio.
Private credit: Private credit instruments (loans, bonds, structured credit) are typically Level 2 or Level 3 under ASC 820, depending on whether observable market prices exist for similar instruments.
TVPI and RVPI: As with IFRS 13, TVPI and RVPI for US GAAP funds depend on the ASC 820 Level 3 valuations of unrealised investments. The same caveats apply: these metrics are only as reliable as the underlying valuations.
Relevant Local Files
Source Verification Note
The ASC 820 standard is maintained by FASB and available through the FASB Accounting Standards Codification (subscription required for the full codification; summaries and updates are publicly available). This source note describes the standard at a conceptual level for alternative fund operations purposes. Accounting treatment of specific instruments under ASC 820 requires qualified accounting advice. The source URL links to ASU 2022-03, a specific update to Topic 820; the broader codification should be consulted for the full standard.