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Fair Value Measurement

Date recorded:

The IASB published the exposure draft Fair Value Measurement in May 2009 and received 156 comment letters at the time of the posting of the agenda paper.

Most respondents to the exposure draft urged convergence on the guidance for fair value measurement under IFRSs and US GAAP. The respondents were concerned with the use of different words in IFRSs and US GAAP might result in different approaches under fair value measurement and possibly different fair value conclusions. The staff presented three types of differences (please refer to the IASB Agenda Paper 11 for further details on each of the differences noted below):

  • Type 1: Differences due to decisions taken by the IASB relating to
    • (a) scope,
    • (b) reference market,
    • (c) highest and best use,
    • (d) blockage factor,
    • (e) day 1 gains or losses,
    • (f) valuation premise and financial instruments,
    • (g) measurement of liabilities, and
    • (h) measurement of equity instruments
  • Type 2: Differences to clarify some of the principles of Topic 820, namely
    • (a) highest and best use,
    • (b) valuation premise, and
    • (c) valuation techniques)
  • Type 3: Differences in grammar, spelling and style

The staff then presented three approaches to the Boards on dealing with the differences that currently exist in the fair value measurement guidance. The approaches were:

  • Approach 1: Eliminate all decision and wording differences. This approach requires both Boards to redeliberate all issues where differences have been identified.
  • Approach 2: Eliminate Type 2 wording differences only. Under this approach the Boards would use the same words except for when each Board has reached a different decision.
  • Approach 3: Continue as before. The IASB would publish an IFRS on fair value measurement guidance independently.

However, both Boards would monitor the activities of the other to minimise differences between the two standards. This is the approach undertaken so far in the project.

The Boards agreed to follow Approach 1 for the fair value measurement project moving forward.

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