Fair Value Measurement
The staff noted that this discussion was in direct response to a direction on 22 March that they address sensitivity analysis for Level 3 fair value measurement. The issue for discussion was how to do this:
- One way is to include in fair value measurement IFRS (and equivalent US GAAP) general guidance about how to perform a sensitivity analysis. Specific requirements would be included in other IFRSs.
- Alternatively, a sensitivity analysis disclosure requirement about all Level 3 fair value measurements could be included in the fair value measurement standard, with specific exemptions from such a disclosure in other individual IFRSs.
The staff did not want to pursue either approach. They proposed that the fair value measurement standards should:
- require a sensitivity analysis disclosure only for Level 3 fair value measurements of financial instruments and derivatives
- change the term 'reasonably possible alternative assumptions' to another term that more clearly conveys the objective, ie:
- emphasise that it is meant to provide information about measurement uncertainty and
- clarify that it is not a worst-case scenario and is not forward looking
- specify that the sensitivity analysis disclosure should consider the effect of interdependencies or correlation when relevant.
As an alternative, if this recommendation was not accepted, the staff proposed that
- the IASB retains the sensitivity analysis disclosure in IFRS 7, with the modifications described above; and
- the FASB considers whether to require a sensitivity analysis disclosure in its Accounting for Financial Instruments project.
There was little support for the staff's preferred approach. The Boards also discussed an approach put forward by a FASB member that would not include any disclosure requirements in the fair value measurement standards at all - keeping the standards strictly about 'how to do fair value'. In addition, there was no obvious reason to single out financial instruments over other assets and liabilities for which fair value was required.
An IASB member offered a variation on this approach, suggesting that all assets and liabilities for which a fair value measure was required on a recurring basis should be subject to the sensitivity analysis requirement (for IFRSs, this would include biological assets and investment properties and commodities measured at fair value).
The staff also clarified that their proposal (and that in ED 2009/5) was that all fair value disclosures in IFRS 7 would move to the Fair Value Measurement IFRS. IASB members were concerned about moving disclosure requirements for financial instruments out of IFRS 7, which addressed disclosure for financial instruments generally. However, the staff did not want to fragment the fair value disclosure requirements for assets and liabilities generally; nor did they wish to duplicate them.
Board members debated these ideas and a variety of views were expressed. The FASB chairman called for preferences: the FASB were more or less evenly split across all alternatives, the IASB had a moderately strong preference for requiring a sensitivity analysis for all assets and liabilities remeasured at fair value on a recurring basis. The FASB chairman then asked who could accept this approach: 10 IASB members and 4 FASB members voted in favour.
An IASB member noted that the revised disclosure package would trigger re-exposure, since it presumes assessment of interdependency - the ED explicitly did not. Staff refused to be drawn on this issue, saying that the assessment of the re-exposure criteria would be placed before the Boards at a subsequent meeting.