Fair value measurement

Date recorded:


The Board continued with the analysis of the comment letters received on the ED Measuring Quoted Investments in Subsidiaries, Joint Ventures and Associates at Fair Value. When the Board last considered this topic, in November 2015, the Board was provided with an assessment of the population that could be affected by the ED and the analysis of feedback received from valuation specialists, accounting firms, securities regulators, the Accounting Standards Advisory Forum (ASAF) and staff of the Financial Accounting Standards Board (FASB). The purpose of this session was to discuss:

  1. the  feedback received from users and preparers of financial statements (Agenda paper 6A);
  2. the analysis of the academic review undertaken by the staff  (Agenda paper 6B); and
  3. the staff proposal for next steps (Agenda paper 6C)

Staff analysis and recommendation

On the first topic, the staff indicated that in accordance with the feedback obtained, the majority of users (primarily investors) were in favour of using P x Q because they believed that it provides a more reliable measure than assumptions taken in valuation techniques by management; while preparers and members of the GPF disagreed with using P x Q without adjustments, because they believe that it does not reflect an exit price. On the second topic, the staff concluded that the valuation profession considers that a listed share price would be adjusted to reflect situations in which the shares individually did not reflect the market price that participants would pay.

On the third issue, the staff proposed to discuss three options:

  1. Continue with the measurement proposals in the ED:
  2. Prioritise the principle of the unit of account; this option would clarify that an entity should respect the unit of account of the item that is being measured at fair value over the existence of Level 1 inputs when those Level 1 inputs do not correspond to the item (i.e. unit of account) being measured at fair value
  3. Continue work on this area if this is identified as being a critical area in the Post-implementation Review (PIR) of IFRS 13

The staff recommended the third option; because they believed that the issue was not widespread and the PIR process could provide further information and evidence to conclude on the topic.


The Board agreed with the staff recommendation and approved unanimously option 3. The reasons provided for the support were consistent with the rationale provided by the staff and were related to (i) the issue discussed in the ED was not widespread in accordance with the evidence obtained by the staff; (ii) the PIR would take place during 2016 and would bring the opportunity to discuss the issues related to IFRS 13 more broadly (for example blockage issues); (iii) the PIR would provide comments from a wider range of users; and (iv) a short-term amendment would not help solve the concerns received throughout the discussion of the ED.

Some Board members indicated during the discussion that their first preference would be option 2 because entities would use a market price and then an entity could support their valuation with supplemental disclosures to explain whether or not the market price did not reflect an actual exit price for that particular investment; nevertheless those IASB members said that they would support option 3 given the overall support for the staff proposal by the majority of the Board.

In relation to the comments provided by the staff included in agenda paper 6A and 6B related to feedback from the ED and literature review, the following issues were mentioned by the Board:

  • There were concerns that the feedback included a number of comments that the problems were related to volatility in the market which were not actually related to the main issue discussed in the ED which was the unit of account; it was pointed out that there seemed to be confusion with general issues around fair value measurements instead of problems with the use of P x Q.
  • There was discussion as to whether the proper market to measure an exit price for this type of transactions would be an M&A market instead of a stock exchange, several Board members pointed out this concern;
  • In relation to control premiums, several Board members and the staff argued that a control premium included other items that should not be part of a fair value measurement such as synergies because synergies were only useful to explain the price paid but not useful to determine an exist price to measure the investment. It was also argued that more education is needed on this topic.

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