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IASB discussion paper on fair value measurements

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30 Nov 2006

The IASB has published for public comment a Discussion Paper on Fair Value Measurements.

The Discussion Paper sets out the IASB's preliminary views on how to measure fair values when fair value measurement is already prescribed under existing IFRSs. It does not propose any extensions of the use of fair values. The Discussion Paper is built around FASB's recently issued SFAS 157 Fair Value Measurements. SFAS 157 establishes a single definition of fair value together with a framework for measuring fair value for financial reports prepared in accordance with US GAAP. The IASB's Discussion Paper:
  • indicates the IASB's preliminary views on the provisions of FAS 157;
  • identifies differences between FAS 157 and fair value measurement guidance in existing IFRSs; and
  • invites comments on the provisions of FAS 157 and on the IASB's preliminary views about those provisions.

Some points about FAS 157:

  • Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.
  • Fair value should be based on the assumptions market participants would use when pricing the asset or liability.
  • FAS 157 establishes a fair value hierarchy that prioritises the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity's own data.
  • Fair value measurements would be separately disclosed by level within the fair value hierarchy.
  • FAS 157 is effective for financial statements issued for fiscal years beginning after 15 November 2007, and interim periods within those fiscal years. Early adoption is permitted.
  • FAS 157 may be downloaded from FASB's Website without charge.
Click for IASB Press Release (PDF 53k). The Discussion Paper will be available without charge on the IASB's website starting 11 December 2006. Comment deadline is 2 April 2007. The IASB plans to publish an Exposure Draft in 2008.

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