Fair value measurement guidance

Date recorded:

The staffs of both the IASB and FASB presented to the two Boards the results of comments received from the IASB's exposure draft on the sensitivity analysis disclosures and the FASB's proposed Accounting Standards Update amending certain measurement guidance and disclosure requirements as a result of the joint deliberations with the IASB.

The feedback received through the comment letter process can be summarised in three primary categories:


Highest and best use concept

Some respondents agreed that the highest and best use concept applies to non-financial assets rather than financial instruments. However, many commented that this may result in a lack of clarity regarding the unit of account when other standards do not clearly specify the appropriate unit of account. An example was mentioned of an investment company and whether the appropriate unit of account would be the holding or the individual instruments that make up the investment. Some suggested utilising a concept of "value maximising behaviour" similar to the highest and best use concept.

Application of premiums and discounts

Some respondents disagree with the prohibition of considering blockage factors in determining fair value of a holding. Others felt that additional guidance on blockage factors would be beneficial to provide clarity why a control premium is permitted while a blockage factor is prohibited.

Measurement uncertainty analysis

Many respondents had significant concern over the proposals on the measurement uncertainty analysis (sensitivity analysis). Comments received on the IASB exposure draft focused on the scope of the proposal as IFRS 7 already includes a sensitivity analysis. The comments on the FASB exposure draft were overwhelmingly opposed to the disclosure requirement.

Concerns raised on the proposed measurement uncertainty analysis include the belief that the disclosure undermines the legitimacy of the level 3 measurement, a lack of guidance on the inclusion of correlation in the disclosure, a lack of guidance on consideration of assumptions that could have been used, questions on the use of third party information such as broker quotes in the level 3 measurement, concerns that level 3 items hedged by other instruments classified as level 1 or 2 may provide misleading results, and concerns over the scope of the disclosure requirements for specific items (e.g., unquoted equity investments).

Project plan

The staff presented the Boards with a project plan to redeliberate those items where new information was obtained during the fourth quarter of 2010. The IASB staff expects to issue the final fair value measurement standard during the first quarter of 2010.

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