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Fair Value Measurement

Date recorded:

The Board continued its discussion of Fair Value Measurements (FVM), and reviewed the current project plan and due process steps. In addition, the Board had a preliminary discussion on accounting for 'day-one gains'.

Project Plan and Due Process

The Board was briefly updated on the developments from the last FASB meeting at which the Fair Value Measurements project was discussed.

The Fair Value Measurement project was added to the IASB's agenda in September 2005. At that time, the Board decided that they would expose the FASB's final FVM standard as an IASB exposure draft, not modifying it other than change US GAAP references to the appropriate IFRS references.

Since then, the staff has become aware of concerns raised by IASB constituents. These include:

  • As the FVM project could change how fair value is measured, some think that proceeding directly to an IASB exposure draft based on the final FASB document could potentially short-cut the IASB's due process requirements.
  • As the FASB document applies a different concept of fair value from that of older IFRSs, constituents have problems with the conceptual reasons for changing to an 'exit price objective' of fair value, particularly when an entity have no intention to sell an asset.
  • As fair value is being increasingly used, fundamental questions regarding relevance and reliability need to be debated prior to completion of the project.

Due to these concerns, the staff presented the Board with two alternative solutions:

  • The first alternative was a modified plan which still would include issuing the FASB document as an exposure draft, in addition to conducting field visits and round-table discussions to get input from constituents.
  • The second alternative was to issue the FASB document as a discussion paper, deliberate this, and then issue an exposure draft. This would allow the Board more time and more flexibility to address the concerns raised by constituents and hopefully a better standard, even if this route will be a longer one.

The Board expressed sympathy for the concerns raised by the constituents, and the majority of Board members agreed that this would require a shift from the current project plan to alternative two which is to issue the FASB document as a discussion paper. However some Board members thought that the second alternative should be avoided as this would delay the issuing of a final standard too long. Alternative two will result in a final IFRS in late 2008 or early 2009.

Some Board members thought that it would be crucial to communicate with constituents that this move away from the current project plan and towards the discussion paper route would take more time, but that it would be done to ensure the interest of constituents.

The Board voted in favour of alternative two, resulting in a discussion paper being issued based on the FASB document. The Board noted that a final plan could not be put together before the final FASB document is issued. As long as the FASB have not issued their final document including, e.g. their application guidance, the IASB will not have a public document accessible for issuing as the IASB's discussion paper.

Day-one Gains and Losses

Fair value, as defined in the FASB's document is an exit price. As a result of the Board's tentative approval of the exit price definition of fair value, in circumstances where an asset or a liability is required to be measured at fair value on initial recognition, a day-one gain or loss may be recorded.

The staff believes the existing guidance in IAS 39 is inconsistent with the exit price notion as tentatively approved by the Board, and therefore needs amendment. The Board was asked whether they would consider:

  • To make only consequential amendments to conform IAS 39 with the guidance in the Fair Value Measurement statement and to leave the current guidance on recognition of day-one gains and losses in IAS 39.
  • Making consequential amendments and change the existing guidance in IAS 39.
The Board decided that they would not make any amendments right now, but rather put a question in the discussion paper whether this should be dealt with in a separate project or as a part of the Fair Value Measurement project.


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