The ED would establish a framework for measuring fair values of both financial instruments and non-financial items. As a framework, the final standard will not expand current requirements for the use of fair value measurements in financial statements. Such changes would be considered in future standards. The FASB has recently posted on its Website
a revised version it calls a Working Draft. A final standard is expected in late 2005. Here are a few highlights of the Working Draft and of major changes from the 2004 Exposure Draft, excerpted from the newsletter:
- The definition of fair value now includes the notion of a reference market. The transaction price is presumed to be fair value, but in certain instances (when the transaction did not take place in the reference market and the entity would
trade in a more advantageous market for the item), the actual transaction price may be rebutted.
- The fair value of a liability must incorporate the entity's own credit standing.
- The Working Draft increases to five the number of levels in the fair value hierarchy. The levels are based on the nature of the inputs used to establish estimated fair value and descend in reliability from Level 1, constituting market inputs that reflect quoted prices for identical assets or liabilities, to Level 5, representing values that are significantly based on
entity inputs that are extrapolated or interpolated but that are not corroborated by other market data.
- The Working Draft prohibits the use of blockage adjustments in estimating the fair value of large blocks of financial instruments.
The IASB has on its research agenda a project on Measurement Objectives
. A discussion paper is expected before the end of 2005.