Fair Value Measurements

Date recorded:

Following the joint IASB-FASB meeting in April 2008 the Board discussed the way forward in this project. At the joint meeting the IASB decided not to re-debate all aspects of the Fair Value Measurement discussion paper (the DP), i.e. not to fully re-debate FAS 157 Fair Value Measurements on which the DP is based. Instead the Board agreed to redeliberate certain areas of confusion or areas in which FAS 157 had proved difficult to apply.

The staff presented an analysis of issues raised in the DP and provided recommendations on whether a particular issue should be redeliberated or not. Technical aspects of fair value measurement were not discussed at this meeting. The Board agreed to discuss further the topics listed below. These topics will be redeliberated mainly because the Board did not express a preliminary view in the DP and/or comments received on the DP indicated a need for further discussion:


The exit price measurement objective

The Board agreed to consider both entry and exit notions of fair value measurement based on the standard-by-standard review currently performed by the staff.


The market participant view

In general the Board reaffirmed its preliminary view in the DP. However, the staff was asked to improve the wording in order to address concerns raised by constituents. In particular, it should be clarified how to apply the market participant view in cases where no market exists (for example, liabilities that cannot be transferred).


Transfer vs. settlement of a liability

The Board agreed to a staff analysis that this is an important cross-cutting issue for other Board projects, particularly, amendments to IAS 37.


Transaction price and fair value at initial: Day one gains and losses

This issue is considered to be interrelated with the entry vs. exit price issue.


The principal (or most advantageous) market

The Board reaffirmed the preliminary view in principal but noted that questions about the practical application needs to be resolved.



Valuation of liabilities: Non-performance risk

There seemed to be a broad consensus to reaffirm the preliminary view that non-performance risks needs to be considered when measuring the fair value. However, the majority of Board noted that this is an important cross-cutting and that there are unresolved issues with regard to presentation (of the counter-entry) and disaggregation.


Highest and best use

The staff intends to address comprehensively all issues relating to 'different markets'.


Bid-ask spreads: Applicability of mid-market pricing to all levels of the hierarchy?

The staff noted that the Board still needs to reach a preliminary and that the question of which transaction costs are to be included will be addressed in this context.


Issues not discussed

  • Disclosures: Redeliberation in light of current market environment
  • Application guidance: Redeliberation in light of current market environment


Topics not to be redeliberated

The Board decided not to redeliberate the following five topics:


1. Attributes (characteristics) specific to an asset or liability


2. Whether transaction costs are separate from fair value

The staff intends to discuss any outstanding issues in connection with bid-ask spreads. (this sentence relates to bullet 2)


3. Three-level fair value hierarchy

Accepted as described in the Discussion Paper without any further deliberations


4. The prohibition of blockage factor adjustments at all levels of the hierarchy

The Board had a thorough debate on this issue. One Board member emphasised that the majority of constituents disagreed with the preliminary view expressed in the DP. Finally, there seemed to be a consensus not to redeliberate the issue but to deal with the concerns in the feedback statement. The staff was asked to review the comments received to ensure that the Board 'has not missed anything' in reaching the preliminary view.


5. The unit of account for financial assets and liabilities

The staff noted that the topics not to be discussed by the Board are broadly consistent with the principles in IFRSs and that they can therefore be addressed in the exposure draft in a way that considers the concerns raised by constituents and is consistent with FAS 157.

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