Post-implementation Review of IFRS 13 Fair Value Measurement – Cover note - Agenda paper 7

The purpose of this session was to provide the Board with background information to the PIR of IFRS 13 (APs 7A and 7B), phase 1 outreach feedback (AP 7C), findings from a scoping review of academic research (AP 7D) as well as next steps in the PIR (AP 7E).

Feedback from the phase 1 outreach indicated that IFRS 13 was generally working well, but highlighted the following main issues:

1. Ineffective disclosures: most disclosures entail a large number of items being presented in an aggregated manner which dilute the usefulness of the resulting information. Disclosures are also often boilerplate and lack entity-specific value;
2. How to measure quoted investments in subsidiaries, joint ventures and associates at fair value, as in whether it should be simply P*Q without any adjustments (this is similar to the feedback received on the related ED issued in September 2014 – see AP 7A);
3. When are markets considered ‘active’, how to establish whether unobservable inputs are ‘significant’, how to determine the fair value of a non-financial asset within a group of assets when the group contains an asset/(s) whose highest and best use is not its current use; and
4. Difficulty in measuring fair value when markets are not active or non-existent, e.g. fair value measurements for biological assets and unquoted equity instruments.

Given that IFRS 13 and the FASB’s equivalent standard, Topic 820, are substantially converged upon issuance, the Staff noted that subsequent changes made to the standards by the respective Boards have not affected the level of convergence. The Staff noted further that the FASB concluded from the Financial Accounting Foundation’s PIR of Topic 820 (completed in March 2014) that Topic 820 is meeting its objectives and does not result in any unanticipated consequences. However, the extensive disclosures required by the Standard were a main concern of stakeholders.

The Staff did not note any material issues arising from a scoping review of academic literature.

Staff recommendation

The Staff recommended that the Board proceed with the PIR and issue a Request for Information on issues 1 to 3 above. Issue 4 was not recommended to be included as the Staff believed that it is outside the scope of the PIR.

Discussion

The Board approved the Staff’s recommendations. On issue 4, the RFI will solicit comments on whether any educational guidance is necessary on how to determine the fair value of biological assets and unquoted equity instruments. The Board chose this alternative over ignoring the issue as they believed that this would help to elicit a more direct and focused response from the respondents, knowing full well that the respondents will comment on this issue anyway even if it was not included in the PIR.

The session was disjointed, with most of the time spent on Board members relaying what they had heard from their constituents. Those views were consistent with the issues noted in the Staff Paper. There were no focused discussions on any significant matter. The Staff were asked to understand why the unit of account/P*Q issue on quoted investments (issue 2 above) did not come up in the FAF’s PIR of Topic 820, and to build the RFI questions on the feedback received on the related ED issued in September 2014 so as to prevent a discussion of this issue from scratch.