IBFed is a consortium of banking associations in Australia, Canada, Europe, Japan, and the United States. The paper sets out the position of the IBFed on "the extent to which the fair value measurement meets the needs of the user community and the objectives of financial reporting". The overall conclusions:
- Fair value measurement provides an appropriate accounting base for financial instruments held for trading purposes or otherwise managed on a fair value basis. However, full fair value measurement of financial instruments would overstate the extent to which instruments are held for trading or managed on a fair value basis within the business and the extent to which deep and liquid markets exist. These are highly significant factors in determining the relevance of fair value in financial reporting.
- A mixed measurement model provides investors with better information for evaluating financial institutions. It requires fair value measurement for assets and liabilities managed on a fair value basis and recognizes that not all financial instruments – let alone non-financial assets and liabilities – are managed on a fair value basis or are even capable of reliable fair value measurement. Where an entity does not manage instruments on a fair value basis, amortised cost is the more appropriate way to estimate future cash flows. Fair value information is already disclosed in footnotes, which are an integral part of financial statements and is a more suitable format for providing the information to investors.
- Reality is more complex than can be communicated in a fair value model. Relevant performance reporting will never be achieved if the framework for financial reporting sticks rigidly to either an amortised cost model or a fair value model. A mixed measurement model represents a principles-based approach to measurement by acknowledging the fact that different entities may follow different business models. Instead of the IASB determining that one approach offers a superior model to that of others, the aim should be for the accounting standards to accommodate the various business models and circumstances in which financial instruments are used. As widely recognized at the IASB Roundtables on measurement, a mixed model is more likely to result in useful reporting.
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Click to view Accounting for Financial Instruments: A Conceptual Paper (PDF 327k).
