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Fair value measurement

Date recorded:

Agenda paper 6: Measuring Quoted Investments in Subsidiaries, Joint Ventures and Associates at Fair Value (Proposed amendments to IFRS 10, IFRS 12, IAS 27, IAS 28 and IAS 36 and Illustrative Examples for IFRS 13) — Project next steps

The Project manager introduced the agenda paper. She said that the objective of the session was to discuss possible directions for the project following the feedback received in the comment letters. In particular, the agenda paper outlined the matters covered in questions 2 and 3 of the ED — fair value measurement of investments in subsidiaries, joint ventures and associates that were quoted in an active market (quoted investments) and the measurement of the recoverable amount of cash-generating units (CGUs) on the basis of fair value less costs of disposal when they corresponded to entities that were quoted in an active market (quoted CGUs).

The ED proposed that the fair value measurement of investments in subsidiaries, joint ventures and associates quoted in an active market should be the product of the quoted price (P) multiplied by the quantity of financial instruments held (Q), or P × Q, without adjustments. She said that the majority of respondents did not agree with the proposals in the ED. Many respondents were of the view that the measurement should be aligned with the unit of account, because this was a fundamental principle embedded in IFRS 13. Measuring quoted investments at fair value using P × Q would be a departure from this principle, because P represented the quoted price for an individual financial instrument and not for the investment as a whole. Accordingly, the staff had explored three possible approaches detailed below:

  • Option A: Build a deeper understanding of the proposed measurement, taking into consideration the input from different sources (i.e. perform research) and derive from this exercise recommendations to the IASB.
  • Option B: Postpone research on the proposed measurement to the Post-implementation Review (PIR) of IFRS 13.
  • Option C: Undertake research on the proposed measurement and feed the results of the research into the PIR of IFRS 13.

She said that the staff proposed option c) for the following reasons:

  1. it would ensure that work on the measurement of quoted investments and quoted CGUs at fair value would continue;
  2. any results from the work undertaken would be fed into the PIR of IFRS 13, which would translate in time savings while undertaking that review; and
  3. the PIR would still provide a good platform for obtaining valuable information about the use of P × Q for the purposes of building sound conclusions for the IASB.

She then opened the discussion to the Board.

The majority of Board members expressed strong support for option A, instead of option C. The reasons provided were:

  1. the IASB had already conducted an outreach process and it did not seem reasonable to wait until the PIR was completed to finalise this issue;
  2. the IASB should conduct research activities to understand the broad issues and the reasons behind the disagreement revealed by the comment letters,
  3. the main issue to be explored would be whether P x Q provided a good answer for measuring investments in quoted subsidiaries for investment entities; and
  4. there was disagreement that there could be other IFRS 13 issues related to the main issue under discussion.

On the other hand, a few Board members supported the staff recommendation. The reasons expressed for the support were related to the fact that there could be more issues related to IFRS 13 which at this stage were not known. The PIR process could help to identify more issues and avoid duplications. Another concern expressed related to the fact that users of financial statements had a preference for the use of P x Q while the feedback from preparers and auditors showed a different result.

The Project manager indicated that the reason for their support of option C was that at this stage they did not understand how pervasive the issue was; she said that even though respondents disagreed with their proposal the staff did not think that there were too many entities with investments in quoted subsidiaries; accordingly, they believed the PIR process would help to better understand the broad implications of the issue.

The Chairman called a vote and Option A was supported by 10 Board members.

Agenda paper 15: 2015 Agenda Consultation — Permission to Publish the Request for Views

The Project manager introduced the agenda paper. She said that the paper provided the IASB with an update on the 2015 Agenda Consultation process and asked the IASB if it granted permission to publish the Request for Views: 2015 Agenda Consultation.

The request for views would include:

  1. an introduction, including discussion of the time period covered by the agenda consultation process and the link with the Trustees’ Review of Structure and Effectiveness;
  2. a description of the Board’s evidence-informed approach to standard-setting;
  3. an explanation of how the Board’s current agenda had developed since 2011;
  4. a summary of the Board’s current agenda, including a discussion of the Board capacity for change and how the current research programme had developed;
  5. an update on the Board’s  other main areas of activity – Standard-level projects, the Conceptual Framework, the Disclosure Initiative and Implementation and maintenance projects; and
  6. a discussion of the time needed to complete projects compared with a triennial agenda consultation cycle.

Descriptions of the projects under the research programme would form an appendix to the RFV.

No comments or questions were raised by the Board members. The Board tentatively decided to approve the proposals by the staff and granted permission to publish RFV 2015 Agenda Consultation in August 2015 with a comment period of at least 120 days.

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