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General VC Questions

How GAAP and ASC820 are involved in valuation policy?

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Nov 28, 2023
Here is the response of the decile LLM:

The Generally Accepted Accounting Principles (GAAP) and ASC 820 (formerly FAS 157) are involved in valuation policy by providing a framework for measuring and reporting the fair value of assets and liabilities. Under ASC 820, investments are categorized into three levels based on the observability of inputs used in their valuation. Level 1 investments have quoted prices in active markets, Level 2 investments use observable inputs other than quoted prices, and Level 3 investments use unobservable inputs. These standards ensure consistency and transparency in financial reporting.
2 answers
Accepted Answer
Nov 30, 2023
The Generally Accepted Accounting Principles (GAAP) and ASC 820 (formerly FAS 157) are involved in valuation policy by providing a framework for measuring and reporting the fair value of assets and liabilities. Under ASC 820, investments are categorized into three levels based on the observability of inputs used in their valuation. Level 1 investments include listed stocks, bonds, funds, or any assets that have a regular mark-to-market mechanism for setting a fair market value, Level 2 investments use observable inputs other than regular mark-to-market mechanisms, and Level 3 investments use unobservable inputs. These standards ensure consistency and transparency in financial reporting.

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