What type of standard does FASB ASC 820 represent?

FASB ASC 820 represents a principles-based standard, which is characterized by its focus on the underlying concepts and rationale of financial reporting, rather than strict rules that must be followed in every instance. This approach provides more flexibility for accountants and valuation professionals when making decisions about how to report financial information, as it allows them to use their judgment to arrive at conclusions that reflect the economic reality of transactions and circumstances.

Principles-based standards aim to promote consistency and comparability while allowing for the complexity of real-world situations. FASB ASC 820 specifically addresses fair value measurements, guiding entities to consider various factors including market conditions, the nature of the asset or liability, and the informational needs of financial statement users when determining fair value.

This contrasts with rules-based standards, which are characterized by detailed guidelines and specific rules that must be adhered to, often leading to a checklist approach to compliance. While rules-based systems can provide clarity in certain situations, they may also limit the ability to represent the economic substance of transactions accurately.

Hence, the classification of FASB ASC 820 as a principles-based standard emphasizes its focus on broader concepts and the exercise of professional judgment in fair value measurements.