The staff set out the results of the discussion at the joint IASB - FASB meeting for discussion. Various NSS made comments for consideration.

Measurement - Impairment

The group discussed a preliminary conclusion arising from the research project that fair value is the most relevant objective for measuring the recoverable amount of an impaired asset and thus should be used when it can be measured with acceptable reliability.

The tentative conclusion continued that where fair value could not be measured with sufficient reliability, a hierarchy of measurements, ending where there was no information in historical cost, would be used.

The group noted the tentative conclusion that many non-contractual assets used in revenue generating processes cannot be assessed individually and, accordingly, must be assessed in the aggregate within individual cash generating units and the alternative view that assets should only be assessed individually

The group noted the tentative conclusion that impairment of assets forming part of cash generating units should be measured according to a two-stage approach:

• measuring impairment in the capacity of individual assets to contribute to the cash generating unit; and
• then measuring the recoverable amount of the impaired cash generating unit, and attributing the loss to the individual assets and liabilities that comprise the cash generating unit.

The group noted the tentative conclusion that it may be necessary to recognize impairment of an asset on initial recognition under certain circumstances. It was noted that a solution was needed to cover the belief that some assets such as motor vehicles lose a significant portion when initially used.

Initial Measurement

The group noted a synthesis of the alternative measurement bases, focusing on a four-level measurement hierarchy. The four levels are:

(a) Level 1 -There is an observable market price for assets or liabilities that are identical or similar to the asset or liability to be measured on or near the time of initial recognition, and appropriate adjustments can be made for (i) any differences between the market traded assets or liabilities and the asset or liability to be measured and (ii) any time difference.

(b) Level 2 -Failing an observable market price meeting the conditions of Level 1, there is an accepted model for estimating the market price of the asset or liability to be measured on initial recognition, and all material inputs to the model reflect observable market prices or reliably measurable phenomena that can be expected to be the basis of market participants' determinations within the model.

(c) Level 3 -Failing the ability to estimate fair value with acceptable reliability (that is, to meet the conditions of Levels 1 or 2):

• an asset should be measured on initial recognition on the basis of the fair value of the consideration paid in exchange for it, provided that this amount can be reliably estimated and absent persuasive evidence that the amount is not recoverable; and
• a liability should be measured on initial recognition on the basis of the fair value of the consideration received in exchange for it, provided that this amount can be reliably estimated and absent persuasive evidence that the amount is not representative of the amount owed.

(d) When the conditions of Levels 1, 2 or 3 cannot be met, an asset or liability should be measured on initial recognition on the basis of an accepted model or technique using entity specific data that can be estimated reliably. Such entity specific data is used to the extent that market data that can be estimated reliably are not available without undue cost and effort, and provided that the entity specific data and supporting assumptions are not demonstrably inconsistent with observable market expectations.

It was further noted that when none of the above measurement alternatives can be applied, the basic conditions for recognition of an asset or liability appear not to have been met.