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Fair Value Measurements

Date recorded:

At this session the staff asked the Board to decide on a definition of 'fair value' - what is the measurement object for items with a measurement basis currently referred to as 'fair value'? The staff acknowledged that some aspects of fair value have not been discussed yet, but will be brought to the Board at future meetings (for example, principal market and day-one gains/losses). Staff's view, however, is that whether fair value means an entry or exit price can be decided separately.

The staff then turned to the standard-by-standard review as requested by the Board. This review had been requested to help the Board to decide whether:

  • To retain the term 'fair value' and define it appropriately, or
  • To replace the term 'fair value' with more specific terms more appropriate in the individual context.

It was noted that a consistent definition of fair value might lead to fewer instances where the Board would require or permit its use. It was also highlighted that a precise definition of fair value would help to ensure proper application where it is required or permitted.

The Board had a lengthy discussion about whether entry and exit price would be the equal for the same item on the same date in the same market. Also, the Board discussed which market an entity should refer to in measuring fair value and whether an exit price could include exit by consumption of assets. Board members expressed a range of views on these issues. No clear consensuses were reached.

Some Board members observed that if the Board cannot clearly define what fair value means, it would be even more difficult for constituents in applying IFRSs. Board members said that some of the issues that are to be brought back for discussion at future meetings must be resolved before the Board can agree on a definition of fair value.

The staff also asked the Board to consider whether to keep the term 'fair value' or abandon it. The Board seemed to be split on that issue.

The Board discussed whether, in measuring the exit-price fair value of an asset the entity is using, the measurement should take viewpoint of the entity or of an independent market participant. Board members' views varied, and no decision was reached.

The staff distributed a flow chart which was not part of the observer notes that was intended to facilitate the discussion.

The Board decided that, once fair value is precisely defined, each reference to fair value in IFRSs should be assessed in relation to the definition. Where 'fair value' as used in an IFRS is not consistent with the agreed definition, the term should be replaced with a more descriptive term.

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