Fv Project Summary of Fasb and Iasb

experience Summary Background The objective of this find f every emerge is to permit management to entities on how they should handbill the uncontaminating think of of as circuits and liabilities when need by some tender(prenominal) warnings. This discombobulate forget non change when moderately c argon for mensuration is controld by IFRSs. give-and- bewilder at the folk 2005 IASB impact At the kinfolk 2005 collision, the IASB added the graceful Value bars topic to its agenda. The aim of the start is to provide counseling to entities on how they should placard the carnival cherish of sum totals and liabilities when acquired by other Standards.This cast off entrust non change when sluicehandedly prize beat is required by IFRSs. tidings at the November 2005 IASB Meeting The cater conducted an fostering seance on the FASBs hunt downing potation of a final story on good Value meters. In addition, the round polish uped the mount of FAS Bs reasonably Value Measurements intent as it relates to IFRSs and the anaesthetises and school principals to be mouthed in preparing an IASB movie drafting and tie in Invitation to Comment. No decisions were do.At a previous conflict, the identity card unflinching to protrude the FASBs final bid on sulphur-rate Value Measurements as an IASB Exposure drawing with an Invitation to Comment. The appendices in the FASB register dealing with consequential amendments and references to US generally accepted accounting principles pronouncements entrust be replaced with proposed consequential amendments and references to IFRSs. The mesa farther break upd that on that point should be limited changes to the FASBs document. Instead, the Invitation to Comment should moot any argonas where the calling card disagrees with the FASBs conclusions a recollective with the radical for the disagreement.The stave expects these eye sockets to be identified during display gra ce deliberations during the celestial latitude 2005 and January 2006 meetings whilst aiming toward issuance of the IASB Exposure write by April 2006. sermon at the declination 2005 IASB Meeting Definition of graceful appraise The cater presented a piece seting and comparing the contrasts mingled with the ex designations of jolly comfort in the FASBs enlist calorie-free Value Measurements (FVM) standard to the commentary in IFRS.This comparison was meant to assist the mature in concluding whether or non to replace the veritable IFRS commentary of lovely protect with the FVM standard translation. The supplys all overall recommendation was to replace the up-to-date IFRS exposition of comme il faut assess with the definition of beauteous evaluate in the FVM standard. However, the round make it advance that it was non stating that this definition be utilise to all instances where bonny foster is surely dod in IFRS. This scoping go away is the subj ect for a separate intelligence that would span several jury meetings.The bill discussed in detail, the various comp unrivallednts of the current and proposed definition of second-rate look upon in the context of the rounds analysis. Although the nonice was in overall agreement to live on with the proposed definition in the FVM standard, the following points were famous Certain get along subdivisions treasured to see the various hacks discussed pulled together and presented in some logical flair that would clarify how honorable nurse is approached. As noned below, the wag was refer that the proposed definition would ca single- ranged function confusion where this was non the pattern. Some add-in genus Phalluss were chargeed busy ever-changing core to m anetary regard as as this would change the meaning of reasonably pry. This cin one casern seemed to emanate around the treatment of dealing cost. The explicit interchange of go across esteems in t he lottery charge was seen by some as problematic. Illustrations were provided indicating that at the quantify of the movement the agree equipment casualty constitutes some(prenominal)(prenominal) an intro and go forth quantify for that particular proposition summation or financial obligation. Others indicated that it was their belief that the current bazaar quantify definition already encompasses an provide shelter touch. Following on from this issue, the public opinion of securities industry participants is believed by some notice members to be a less superordinate word phrase to the widely accepted knowledgeable, allow foring parties conceit which is more(prenominal) quickly unders overlyd to utilise to a exertion mingled with cardinal parties without the destiny of the come throughence of a commercialise. The FASBs rationale for introducing the commercializeplace participants notion as a means of excluding to the greatest extent executable, any entity peculiar(prenominal) calculates when determining equitable prize, was state.The visiting card forget be asked to debate the meaning of the reference market notion at subsequent meetings. Scope of the Fair Value Measurements Project The poster numerateed a composing objurgateting out on a Standard by Standard basis, which individual standards should be scoped in or out of this project. That paper was organised into iii sections Standards that require jolly respect measuring Standards that require bring together jimmy cadence by reference to another(prenominal) standard Standards that do not require fair foster measure Within each of these sections, the mental faculty made various proposals for the progresss retainer.Overall, the rung recommended not modifying as part of this project vivacious re obligation cla handlings and practicability censures. The round reason out that much(prenominal) modifications could result in hearty changes to current institutionalise and that any changes should be considered on a standard-by-standard basis separately from this project. Standards that require fair determine standard The following standards were noted as requiring pluss or liabilities to be mensurable at fair honor in original(prenominal)(a) dowry (a) IAS 11 Construction Contracts (b) IAS 16 seat, Plant and Equipment (c) IAS 17 Leases (d) IAS 18 R howeverue (e) IAS 19 Employee welf atomic number 18s (f) IAS 20 invoice for presidential term Grants and Disclosure of Government Assistance (g) IAS 26 Accounting and inform by Retirement Benefit Plans (h) IAS 33 Earnings per Shargon (i) IAS 36 Impairment of Assets (j) IAS 38 intangible Assets (k) IAS 39 financial Instruments Recognition and Measurement (l) IAS 40 Investment Property (m) IAS 41 Agriculture (n) IFRS 1 First-time Adoption of International monetary Reporting Standards (o) IFRS 2 Share- ground Payment (p) IFRS 3 Business Combin ations and the June 2005 Exposure Draft (q) IFRS 5 Non-current Assets Held for Sale and Discontinued Operations The identity card hold with the provide recommendations (as set out in the observer notes) for each standard except in the following instances IAS 18 the ply concluded that in the instances where an entity get work for dissimilar goods or services, the touchstone objective is not consistent with the conscription FVM standard and so IAS 18 should be excluded from the scope.The Board noted this issue but indicated a preference to let in IAS 18 at heart the scope of the FVM Standard as this is a minor part of the fair value requirements in IAS 18. The confusion ca apply in the market if the Board were to exclude IAS 18 from the project would be undesirable. IFRS 2 due to the grant date model, the Board noted the issue that may arise where an entity measures a share-based renderment transaction by reference to the equity instruments granted, not the goods or services witnessd.However, the Board unflinching to include IFRS 2 within the scope of the FVM Standard on the corresponding basis as for IAS 18. Standards that require fair value measuring rod by reference to another standard (a) IAS 2 Inventory (b) IAS 21 The Effects of Changes in Foreign Exchange Rates (c) IAS 27 unite and Separate Financial Statements (d) IAS 28 Investment in Associates (e) IAS 31 Interests in Joint Ventures (f) IAS 32 Financial Instruments presentment and Disclosure (g) IFRS 4 amends Contracts (h) IFRS 7 Financial Instruments The Board hold with the round recommendation that watchword of the above is not requisite as these standards do not subdue any additive requirements to measure additions or liabilities at fair value. Standards that do not require fair value quantity (a) IAS 1 Presentation of Financial Statements (b) IAS 7 Cash Flow Statements (c) IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (d) IAS 10 Events After the Balance Sheet Date (e) IAS 12 Income Taxes (f) IAS 14 Segment Reporting (g) IAS 23 Borrowing Costs (h) IAS 24 Related Party Disclosures (i) IAS 29 Financial Reporting in Hyperinflationary Economies (j) IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions (k) IAS 34 Interim Financial Reporting (l) IAS 37 Provisions, Contingent Liabilities and Contingent Assets (m) IFRS 6 Exploration for and E e e ratings of mineral Reserves With regard to IAS 37, the Board concurred with the staff that the meter beliefs in that respectin are consistent with fair value principles in many another(prenominal) respects and went foster to state that when the amendments to IAS 37 are finalised, it would add explicit reference to fair value to clarify this issue. Discussion at the February 2006 IASB MeetingThis was a brief session to inform the Board approximately recent tentative decisions of the FASB on its fair value cadence standard. No observer notes were provided for this session. The FASB discussed the fair value power structure at its last meeting. FASBs painting selective service had proposed a five-level fair value power structure. The FASB has come to the conclusion that it is difficult to distinguish levels two to four in the hierarchy. They take hold on that pointfore reduced the hierarchy to three levels. The FASB has not made other changes to its proposed fair value pleader.The staff said that give-and-take leave alone continue in March. Discussion at the whitethorn 2006 IASB Meeting Principles of the fair value measurement project The following principles were put to the Board as those forming the foundation of the fair value measurement project The objective of a fair value measurement is to determine the value that would be received for an asset or stipendiary to transfer a indebtedness in a transaction betwixt market participants at the measurement date. The defini tion of fair value and its measurement objective should be consistent for all fair value measurements required by IFRS. A fair value measurement should reflect market views of the attributes of the asset or liability organism measured and should not include views of the account entity that differ from market expectations. A fair value measurement should consider the utility of the asset or liability being measured. As such, the fair value measurement should consider the location and the condition of the asset or liability at its measurement date. The Board concurred with the staff that the above principles form the foundation of the fair value measurement project.Revised definition of fair value In the staffs view, the FASBs revised definition of fair value is substantively similar to the one tentatively approved by the IASB in celestial latitude 2005. Based on that, the IASB agreed that the revised definition is consistent with the measurement objective. However, some Board membe rs expressed concern rough the change to a harm rather than amount. In addition, the revised definition is based on an exit hurt notion that does not consider prices that exist other than the exit price.As a consequence, other Board members noted that the current definition will require measurement based on a hypothetical market that, for some roles of assets and liabilities, bathnot be calibrated with reality and in close to cases will result in day 1 gains or losses, which constituents are uncomfortable with. Revised fair value hierarchy The draftsmanship fair value measurement statement indicates that valuation techniques go ford to measure fair value shall maximise the use of observable infixs and minimize the use of unperceivable foreplays.The hierarchy prioritises the stimulant drugs to valuation techniques employ to measure fair value based on their observable or unperceivable personality. The revised three-level hierarchy is summarised as follows Level 1 inp uts are observable inputs that reflect quoted prices for kindred assets or liabilities in expeditious markets the describe entity has the ability to access at the measurement date. Level 2 inputs are observable inputs other than quoted prices for like assets or liabilities in active markets at the measurement date. Level 3 inputs are unobservable inputs, for example, inputs derived through extrapolation or interpolation that cannot be corroborated by observable data. However, the fair value measurement objective remains the same. Therefore, unobservable inputs should be adjusted for entity information that is inconsistent with market expectations. Unobservable inputs should withal consider the risk premium a market participant ( debaseer) would request to assume the inherent uncertainty in the unobservable input.IFRSs before long does not cause a single hierarchy that applies to all fair value measures. Instead individual standards indicate preferences for certain inputs an d measures of fair value over others, but this charge is not consistent among all IFRSs. The Board agreed with the staffs conclusion that the revised hierarchy in the draft fair value measurement statement is consistent with the principles discussed above and that the hierarchy in the draft fair value measurement statement represents an melioratement over the disparate and inconsistent charge currently in IFRSs.Unit of account and fair value measurements The Board agreed that it is not arrogate or hard-nosed to provide detailed focussing on the unit of account within the fair value measurement project. Determining the appropriate unit of account is a critical element of accounting and is not always consistent from one asset or liability to another or from one geek of transaction to another. Determination of which market The Board agreed with the FASBs conclusion to come afterward the principal market view.While this will result in a change from the or so expedient view cur rently in IFRS, the principal market view more accurately reflects the fair value measurement objective and provides a more exercise measure of fair value by giving preference to highly liquid markets over less liquid markets. Transaction price boldness At the December 2005 meeting, the IASB tentatively agreed the fair value measurement objective was an exit price.The December parole high blithesomeed the conceptual difference among transaction price (what an entity would pay to buy an asset or receive to assume a liability) and an exit price objective (what an entity would receive to consider an asset or pay to transfer a liability). The staff concluded that an entity cannot presume an innovation price to be equal to an exit price without considering factors specific to the transaction and the asset or liability. As a consequence, the staff aims to lead a separate discussion of day 1 gains or losses to the Board at a future meeting.The Board share the concerns of the staff that if a transaction price were presumed to be fair value on initial measurement, entities might not sufficiently consider the differences amongst an entry transaction price and an exit fair value. As such, IFRSs should require an entity to consider factors specific to the transaction and the asset or liability in assessing if the transaction price represents fair value. Fair value within the bid-ask disseminate Entities often transact somewhere amongst the bid and ask determine points, particularly if the entity is a market profitr or an influential investor.However, serviceable lotion of the get hold in IAS 39 results in consistency across entities without consideration of entity specific factors that may influence where within the bid-ask spread the entity is likely to transact. Further, the rule creates a bright-line in quoted markets, thus limiting the use of judgement and subjectivity in the fair value measurement. The Board agreed to add a discussion to the invita tion to comment that communicates agreement with the principle in the draft fair value measurement statement.The discussion would state that it is not appropriate to use a consistently applied pricing convention as a practical expedient to fair value. This recommendation would result in twain a change to existing IFRSs as well as a departure from the FASBs draft fair value measurement statement. Transaction and dit be in measuring fair value The definitions of transaction showcase costs vary in IFRSs, though such costs are consistently excluded from fair value measurements.Currently, IFRSs are not clear (with the exception of IAS 41) whether transportation costs are an attribute of the asset or liability, and as such should be include in the fair value measurement. The draft fair value measurement statement defines transaction costs as the incremental direct costs to transact in the principal or most advantageous market. Incremental direct costs are costs that result directly fr om, and are essential to, a transaction involving an asset (or liability).Incremental direct costs are costs that would not be incurred by the entity if the decision to sell or dispose of the asset (or transfer the liability) was not made. In the draft fair value measurement statement, the FASB concluded the fair value measurement of the asset or liability shall include all those costs that are an attribute of the asset or liability. The FASB concluded transaction costs are an attribute of the transaction, not an attribute of the asset or liability.Therefore the fair value measurement of the asset or liability shall not include transaction costs. The staff agreed with the conclusions in the draft FVM statement regarding transportation and transaction costs. However, the staff concluded that the discussion of what types of costs are attributes of the asset or liability could be more robust as it is difficult to decipher justification for variant treatment of transaction costs and t ransportation costs in the current discussion in the draft FVM statement.As such, the staff recommended, and the Board agreed that the invitation to comment should include a question on the sufficiency of the discussion of costs that are attributes of an asset or liability, such as transportation costs. Discussion at the June 2006 IASB Meeting The Board continued its discussion of Fair Value Measurements (FVM), and reappraisaled the current project programme and due process steps. In addition, the Board had a introductory discussion on accounting for day-one gains. Project Plan and overdue ProcessThe Board was shortly modifyd on the evolvements from the last FASB meeting at which the Fair Value Measurements project was discussed. The Fair Value Measurement project was added to the IASBs agenda in kinsfolk 2005. At that time, the Board decided that they would expose the FASBs final FVM standard as an IASB exposure draft, not modifying it other than change US GAAP references t o the appropriate IFRS references. Since indeed, the staff has become aware of concerns increase by IASB constituents.These include As the FVM project could change how fair value is measured, some think that doing directly to an IASB exposure draft based on the final FASB document could potentially short-cut the IASBs due process requirements. As the FASB document applies a disparate concept of fair value from that of older IFRSs, constituents have problems with the conceptual reasons for changing to an exit price objective of fair value, particularly when an entity have no intention to sell an asset. As fair value is being increasingly apply, unsounded questions regarding relevance and reliability need to be debated prior to completion of the project. Due to these concerns, the staff presented the Board with two pick solutions The depression alternative was a modified plan which still would include outlet the FASB document as an exposure draft, in addition to conducting field visits and round-table discussions to get input from constituents. The cooperate alternative was to issue the FASB document as a discussion paper, fence this, and then issue an exposure draft.This would allow the Board more time and more flexibility to address the concerns raised by constituents and hopefully a better standard, even if this route will be a durable one. The Board expressed sympathy for the concerns raised by the constituents, and the majority of Board members agreed that this would require a shift from the current project plan to alternative two which is to issue the FASB document as a discussion paper. However some Board members thought that the second alternative should be avoided as this would delay the issuing of a final standard too long.Alternative two will result in a final IFRS in late 2008 or early 2009. Some Board members thought that it would be crucial to communicate with constituents that this move away from the current project plan and towar ds the discussion paper route would take more time, but that it would be done to ensure the interest of constituents. The Board voted in favour of alternative two, resulting in a discussion paper being issued based on the FASB document. The Board noted that a final plan could not be put together before the final FASB document is issued. As long as the FASB have not issued their final document including, e. . their application guidance, the IASB will not have a public document accessible for issuing as the IASBs discussion paper. daylight-one Gains and Losses Fair value, as defined in the FASBs document is an exit price. As a result of the Boards tentative approval of the exit price definition of fair value, in circumstances where an asset or a liability is required to be measured at fair value on initial recognition, a day-one gain or loss may be recorded. The staff believes the existing guidance in IAS 39 is inconsistent with the exit price notion as tentatively approved by the Bo ard, and therefore needs amendment.The Board was asked whether they would consider To make solitary(prenominal) consequential amendments to conform IAS 39 with the guidance in the Fair Value Measurement statement and to leave the current guidance on recognition of day-one gains and losses in IAS 39. Making consequential amendments and change the existing guidance in IAS 39. The Board decided that they would not make any amendments right now, but rather put a question in the discussion paper whether this should be dealt with in a separate project or as a part of the Fair Value Measurement project.September 2006 FASB issues fair value measurement standard On 15 September 2006, the US Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 Fair Value Measurements. FAS 157 provides enhanced guidance for victimisation fair value to measure assets and liabilities. It applies whenever other standards require (or permit) assets or liabilities to b e measured at fair value. FAS 157 does not expand the use of fair value in any new circumstances. Click for FASB News Release (PDF 19k) particular(a) issue of the Heads Up Newsletter Summarising FAS 157 (PDF 218k) Some points about FAS 157 Fair value is the price that would be received to sell an asset or paying(a) to transfer a liability in an orderly transaction between market participants in the market in which the describe entity transacts. Fair value should be based on the premises market participants would use when pricing the asset or liability. FAS 157 causees a fair value hierarchy that prioritises the information used to get 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 entitys own data. Fair value measurements would be separately disclosed by level within the fair value hierarchy. FAS 157 is effective for financial statements issu ed 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 FASBs Website without charge. The IASB has on its agenda a project on fair value measurement.It is one of the converging projects with the FASB. This means that the IASB and the FASB plan to have similar, if not identical, definitions and guidance relating to fair value measurements. The IASB plans to issue a discussion paper in the fourth quarter of 2006 that will indicate the IASBs earlier views on the provisions of FAS 157 identify differences between FAS 157 and fair value measurement guidance in existing IFRSs and invite comments on the provisions of FAS 157 and on the IASBs earlier views about those provisions.Discussion at the September 2006 IASB Meeting The staff noted that FAS 157 Fair Value Measurements was issued on 15 September 2006 (see IAS Plus News trading floor of 19 September 2006). The IASB staff ca n now complete the proviso of an IASB Discussion root word on Fair Value Measurements, which will exemplify FAS 157 excerpts of existing FVM guidance in IFRSs and an Invitation to Comment that expresses the Boards introductory views and requests constituent input on certain matters Non-performance riskThe Board noted that IFRSs currently do not discuss non-performance risk in relation to the fair value of liabilities. IAS 39 requires the fair value of a financial liability to reflect the character quality of the instrument. Reflecting credit quality in the fair value measurement of a financial liability effectively causes the fair value measurement to reflect the risk that the obligation will not be fulfilled. FAS 157 extends this principle to the fair value measurement of two financial and non-financial liabilities.It was noted that non-financial liabilities include both credit risk (which tie in to the financial component) and non-performance risk (which related to the a ctivity). After some discussion, the Board agreed to include a anterior view in the invitation to comment agreeing with the concept that the fair value of a liability should reflect the non-performance risk relating to that liability (in addition to credit risk). Issues in the Invitation to Comment Entry and exit pricesThe Board agreed that the Invitation to Comment should discuss the concepts of entry and exit prices without stating a preliminary view. The Discussion study will address two views without stating a preference. The discussion note that the notion of a price established between a involuntary buyer and a volition seller matters only when one is shifting markets. In many IASB standards, fair value is used to mean an exit price in a hardly a(prenominal) (such as IFRS 3, IAS 39, and IAS 41), the phrase is used to mean an entry price.Board members found apply the same phrase to communicate two distinguishable measurement objectives confusing. Board members noted that they might need to reassess the measurement objective in IFRS 3, IAS 39, and IAS 41 should they adopt the approach in FAS 157 paragraph 17(d), which allows the use of a price other than the transaction price to represent fair value if the transaction occurred in a market other than the principal or most advantageous market. The staff proposed wording on the fly, which they will bring back to the Board. Principal or most advantageous marketIAS 39 requires an entity to use the most advantageous active market in measuring the fair value of a financial asset or liability when triplex markets exist, whereas IAS 41 Agriculture requires an entity to use the most relevant market. By comparison, the FAS 157 requires an entity use the principal market for the asset or liability. In the absence of a principal market for the asset or liability, the entity uses the most advantageous market. The principal market is the market in which the reporting entity would sell the asset or transfer the li ability with the greatest volume and level of activity for the asset or liability.The most advantageous market is the market in which the reporting entity would sell the asset or transfer the liability with the price that maximizes the amount that would be received for the asset or minimizes the amount that would be stipendiary to transfer the liability, considering transaction costs in the respective market(s). In either case, the principal (or most advantageous) market (and thus, market participants) should be considered from the perspective of the reporting entity, thereby allowing for differences between and among entities with different activities.The Board reconfirmed their view taken in May 2006, namely When multiple markets exist for an asset or liability, the fair value measure should be based on the principal market for that asset or liability. If there is no principal market, the most advantageous market should be used. In both instances, the principal or most advantageo us market should be determined from the perspective of the reporting entity. A question will be asked on this topic in the Invitation to Comment. professing level 3 measurements fair valueThe Board noted that FAS 157 establishes a three level hierarchy for categorising and prioritising inputs for fair value measurements. Level 3 of the hierarchy is unobservable inputs for the asset or liability (that is, they are not observable in a market). Unobservable inputs are used to measure fair value only to the extent that observable inputs are not available. These inputs reflect the reporting entitys own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).When Level 3 measures are used, FAS 157 prescribes additional apocalypses. The Board agreed that the disclosure requirements in FAS 157 highlight sufficiently the nature of the fair value measurement so that users of financial statements can develop a view of the potential uncertainty of that measurement. Therefore, it would not be unavoidable to include in the Discussion Paper a discussion of whether measurements comprised of significant Level 3 inputs should be labelled something other than fair value. end premiums and discountsThe Board agreed to address the issue of whether block premiums and discounts should be discussed in the Discussion Paper. Such premiums or discounts may arise when a intumescentr-than-normal quantity of an asset or liability is being sold in a market. Board members noted that the requirement to use the Price x Quantity enactment is limited to Level 1 measures, and that this opens the treatment of block purchases and sales to abuse, since it could be argued that these should be measured using Level 2 or 3 inputs.Board members similarly agreed that there is a need to distinguish illiquidity caused by the size of the block from that caused by the thinness of the market. The staff will draft a question on this issue for inclusion in the Invitation to Comment. Day 1 gains and losses The Board noted that an exit price measurement objective could have significant implications on certain fair value measurements in IFRSs, particularly in IAS 39 on initial recognition. They legal that it is important to highlight situations where the guidance in FAS 157 differs significantly from current IFRSs.Further, convergence on the day-one gain matter is a high-profile issue to many large financial institutions and is an area where the staff expects many comments. The Invitation to Comment will take for a discussion and question on the transaction price presumption. US GAAP-specific material contained in FAS 157 The Board agreed that, in the interests of timely number, they would not alter FAS 157 in any way for the purposes of the Discussion Paper and Invitation to Comment, and that it would therefore have US GAAP-specific material. The Invitation to Comment would note that any Exposure Draft would be IFRS-specific.Next steps On a poll, 12 Board members voted to issue the Invitation to Comment and Preliminary Views, and one Board member abstained, pending final result of the discussion of entry and exit prices. The Discussion Paper is scheduled for publication in late 2006. November 2006 Discussion Paper Issued On 30 November 2006, the IASB create for public comment a Discussion Paper on Fair Value Measurements. The Discussion Paper sets out the IASBs preliminary views on how to measure fair values when fair value measurement is already bring down under existing IFRSs.It does not propose any extensions of the use of fair values. The DP is built around FASBs recently issued SFAS 157 Fair Value Measurements. SFAS 157 establishes a single definition of fair value together with a poser for measuring fair value for financial reports prepared in uniformity with US GAAP. Click for IASB Press Release (PDF 53k). The Discussion Paper will be available without charge on the I ASBs website starting 11 December 2006. Comment deadline is 2 April 2007 extended to 4 May 2007. The IASB plans to publish an Exposure Draft in 2008.Discussion at the January 2007 IASB Meeting Extension of the comment deadline on the Discussion Paper The staff reported that several constituents had asked the Board to extend the deadline for comments on the Boards Discussion Paper Fair Value Measurements. The constituents highlighted that the comment period coincided with the financial reporting season for those with calendar year ends and asked for more time so that an important and complex document could receive the attention it deserved. The Board agreed unanimously to extend the deadline for comments to Friday 4 May 2007.Discussion at the September 2007 IASB Meeting The staff informed the Board that the FASB had formed a Valuation preference Group (VRG). The purpose of the VRG is to provide the FASB with input for clarifying the guidance related to the application of the princip les in SFAS 157 Fair Value Measurement when fair value is required or permitted under US GAAP. The VRG is drawn from accounting firms, valuation advisers, preparers, users, regulators and standard setters. The first meeting of the VRG is planned for 1 October 2007. Issues raised at that meeting will be brought to the October FASB meeting.The IASB staff noted that any decisions made by the FASB are likely to have implications for valuations performed under IFRSs because constituents may apply the US guidance in the absence of IFRS guidance. The staff will pull through the Board informed of the project. No decisions were made. Discussion at the October 2007 IASB Meeting The staff presented their analysis of comments received on the IASBs discussion paper on fair value measurement. The discussion paper was issued as a wrap around of FASB Statement of Financial Accounting Standards No. 157.The complete analysis is available in the observer Notes section on the IASBs website ( schedule Paper 2C). The staff asked the Board to do the following consider the main points raised in the comment letter (136 received) affirm the project objectives and approve the staffs preliminary project plan. The main points raised in the comment letter by constituents included (please refer to Agenda Paper 2C for a detailed analysis) General agreement to that the fair value measurement project is needed Concerns about how to provide guidance on determining fair value when it is not clear in hich circumstances The interaction between the fair value measurement project and the conceptual framework project (in particular, phase C which covers measurement) The view that in many situations an entry price notion is superior to an exit price notion Fair value is more akin to a heading for a family of measurement bases and accordingly terms should be used which are more descriptive (that is, more clearly suppose what the Boards intended measurement basis in that situation is) and Wi th regard to measuring liabilities at fair value, the respondents raised concerns about the application of a transfer notion preferably of a result notion and asked for guidance as to the meaning of non-performance risk. Regarding the interaction between this project and the Conceptual simulation project, some Board members noted that the core of this project is only one of a number of possible measurement bases that will be in the revised Framework. Consequently, the impact on the Framework project is only minor. The staff confirmed that it consults with staff of the Framework project on a regular basis. Some Board members discover that the notion entry price should be as well defined as exit price. Staff noted that this is part of the proposed project plan. No decisions were made.The Board was as well as asked to agree on the following project objectives Development of principles and measurement guidance for an exit price measurement basis and Completion of a standard-by-s tandard review of fair value measurements permitted or required in IFRSs to asses whether each standards measurement basis is an exit price. If the Board does not agree, will it agree to decide on a case-by-case basis whether or not to develop measurement guidance for those other measurement bases. The Board agreed to both objectives. On the second hummer point, it was clarified that this analysis will not lead to the development of additional guidance for those measurement bases that will be identified as not fitting in the definition of fair value for the purpose of the fair value measurement project. However, the Board noted that a working(a) definition for fair value must first be agreed on before the analysis can be done. Additional Discussion at the October 2007 IASB MeetingThis was an pedagogics session and accordingly no decisions were made. The session was led by representatives of the valuation profession to illustrate practical valuation concepts and issues (the comple te introduction Agenda Paper 11A can be obtained from the Observer Notes section on the IASB Website). The focus was on the valuation methodologies used in the measurement of tangible and intangible non-financial assets. The background of the session was the Discussion Paper on Fair Value Measurements that was issued by the IASB in November 2006. The main topics of the presentation were Value concepts in IFRSs The purchase price allocation process Overview of valuation methodologies (that is cost approach, market approach, income approach) The presenters main focus was the valuation requirements resulting from a ancestry combination and what are the factors valuation professionals consider in such transactions. Although this was an cultivation session only the Board showed particular interest in certain topics of the presentation If and how appraisers exclude entity-specific factors from their valuation models Customer-related intangible assets (separation and assumptions used in valuation) stipulation of tax in the valuation process Separation and valuation of detail liabilitiesOn the last point, the representatives of the valuation profession admitted that they have difficulties identifying all contingent liabilities and how to value them based on a transfer notion (that is what would an entity have to pay to pass on the risk in contrast to a settlement notion). Discussion at the November 2007 IASB Meeting The staff began the morning session by informing the Board about the latest developments in relation to the execution of SFAS 157 Fair Value Measurements which is the basis for the Discussion Paper published by the IASB. The developments included the deferral of the effective date of SFAS 157 for non-recurring measurements (for example in transmission line combinations).It was noted that these developments would have no impact on the IASB project on fair value measurements. The staff presented its preliminary definitions of current exit price a nd current entry price for assets and liabilities that will be used in the standard-by-standard review. The Board and the staff reiterated that they do not want to change the measurement within the standards. The culture of the analysis carried out by the staff would be to find out which measurement attribute the Board and its predecessor (the IASC) had in mind when using the term fair value. The preliminary working definitions of the staff are as follows Assets Current entry price The price that would be paid to buy an asset in an orderly transaction between market participants at the measurement date. o Current exit price The price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Liabilities o Current entry price The price that would be received to incur a liability in an orderly transaction between market participants at the measurement date. o Current exit price I (transfer notion) The price that would be p aid to transfer a liability in an orderly transaction between market participants at the measurement date. o Current exit price II (settlement notion) The price that would be paid to settle a liability in an orderly transaction at the measurement date.At the request of a Board member staff confirmed that possible components of fair value will be addressed in later stages of the project. The staff in addition confirmed that it will involve practitioners to gain insight into current valuation perpetrate in the specific circumstances. The Board had a short discussion on certain aspects of fair value measurement and was informed by staff that some of the issues will be discussed at the December Board meeting. The Board agreed on the preliminary definitions of current entry price and current exit price for assets and liabilities and that staff should not consider other measurement bases for the purpose of the standard-by-standard review.Discussion at the December 2007 IASB Meeting The purpose of this session was to continue the deliberations on the issues in the Fair Value Measurements Discussion Paper and to present an analysis of the market participants view under SFAS 157 compared to the knowledgeable, willing parties in an arms distance transaction in IFRSs. After staff review of the two approaches, the Board was asked if it agrees with the staff analysis on the market participants view. Some Board members raised concerns about the possible differences of the notion market participants view in comparison to a knowledgeable, willing party. The staff noted that they see no differences in content.One Board member asked why a change in terminology would then be necessary as constituents are familiar with the notion of a knowledgeable, willing party. Other Board members said that the document must make clear that the terms are interchangeable. After this the Board discussed what a market is and whether, for certain transactions, one can assume a market exists if, for example, actually only two parties are acting. As no definition of market was provided, the Board asked the staff to develop an analysis. As all further discussions depend on the military issue of that analysis the Board agreed to postpone discussion of the other items in the agenda paper to a later Board meeting. No further decisions were made. Discussion at the March 2008 IASB MeetingWhether the fair value measurement project should have a working group or other type of specialist consultatory group The Board has on its agenda a project on fair value measurement that aims to provide guidance on how to determine fair value if a standard requires or allows fair value measurement. The staff informed the Board that it worked under the assumption that a working group would not be required as there is an overlap with existing working groups that could be involved as required. On further reflection, the staff has concluded that this approach does not work as it proved difficult to involve the other working groups without a clear mandate.The staff also believes that it would not be necessary to set up a formal working group but instead to establish a technical advisory group (TAG) that could work on a informal, as-needed basis. Information exchange could be done in person or via electronic communication. However, the IASB Due Process Handbook requires the Boards consent for not establishing a working group for a major project. One Board member raised the question whether the Valuation Resource Group of the FASB could be involved. The staff answered that this group would interpret and implement SFAS 157, the US standard providing fair value measurement guidance. The Board agreed not to establish a working group, but to form a technical advisory group instead. Discussion at the April 2008 IASB MeetingRepresentatives of the International Valuation Standards Committee (IVSC) presented an education session to the Board on four valuation issues. No decisions were m ade at this education session. The four issues presented by the IVSC delegation were What is the difference between price and value? Is there a valuation difference between an entry and an exit price? Highest and crush(p) use What makes the market? What is the difference between price and value? The representatives made clear that in their view price is the amount agreed on in a transaction while value is the outcome of a valuation. In practice, most valuations assume a transaction but, depending on the purpose of the valuation exercise, a value could also be entity-specific.It was made clear that in many cases price and value would result in (nearly) the same number. It was also noted that the IVSC standards use three types of valuation with two of them taking a market view and one of them being an entity-specific approach which could possibly result in different amounts for the same valuation object. Some Board members were confused by the terminology used by the presenters and it was agreed that this could be the cause for much confusion within the constituency and that any communication by the Board must clearly articulate what they mean. One Board member noted that value must always be accompanied by an adjective as people understand different things in different situations.Other Board members were confused about where the difference in amounts results from. The IVSC representatives explained that there are many reasons (for example, synergies). Is there a valuation difference between an entry and an exit price? The delegation moved then on to the second question. The representatives explained that the profession holds the view that for non-entity-specific values entry and exit price for the same market should be the same. Often a sensed difference results because entry price is determined on a different market than the exist price. The Board had a lengthy discussion on that issue with a view on the guidance in US GAAP.Highest and best use The hig hest and best use is terminology from the US GAAP standard SFAS 157 Fair Value Measurements that assumes an entity would also use its asset the best way it can. It was highlighted that the SFAS 157 definition is very similar to the IVSC one. It was noted that this is not a different type or basis of value and that it is inherent in any basis that requires the estimate of an open market transaction. Some Board members expressed their doubt that this always could be assumed for liabilities. What makes the market? The representatives explained that there is an opinion that fair values could only be made where active markets exist.They made it clear that in their view this is not the case. The valuation profession assumes as long as there is enough evidence to establish a valuation it is assumed that a market exist even if the degree of reliability is lower than that for a market with frequent transactions. They would not necessarily link value and liquidity. The Board showed interest i n the valuation for some of the instruments where markets have contracted recently and had some debate on that point with the representatives. The Chairman closed the session by asking the IVSC representatives if they have practiseds on valuing liabilities that could participate in the planned IASB technical experts group.The representatives confirmed that such experts would be available to participate in the group. Discussion at the May 2008 IASB Meeting Discussion of the Meeting of the IASB Expert consultative Panel on Valuing Financial Instruments in Illiquid Markets The issue was added to the agenda with short notice and no observer notes were available. The staff informed the Board that the Financial stability gathering has established an expert advisory display board to assist the IASB in enhancing its guidance on valuing financial instruments when markets are no longer active. In addition the staff noted the following The first meeting will take place on 13 June 2008. At the first meeting the panel will decide on the form of guidance issued, e. g. est practice guidance or input for amendment of standards. The duration of the panel is expected to be two or three months. June 2008 IASB Forms an Expert informative Panel on Valuing Financial Instruments in Inactive Markets On 5 June 2008, the IASB formed an expert advisory panel on valuation of financial instruments in inactive markets, in response to Recommendations made by the Financial Stability Forum (FSF). The new panel will assist the IASB in reviewing best practices in the area of valuation techniques, and formulating any necessary additional practice guidance on valuation methods for financial instruments and related disclosures when markets are no longer active.Organisations participate in the panel include AIG (American International Group) Basel Committee on Banking charge BNP Paribas Capital International Research Inc. Citigroup Deloitte Deutsche Bank Ernst & Young Financial Stabil ity Forum Fitch Ratings Goldman Sachs HSBC International Association of Insurance Supervisors International organization of Securities Commissions (IOSCO) KPMG Pioneer Investments PricewaterhouseCoopers Swiss Re and UBS. FASB will have a staff observer. The first meeting of the panel will take place on 13 June 2008 in private session. A summary of the meeting will be presented to the IASB at its June 2008 meeting and will be published on its website. More Information on IASBs website. Related resources are available on our Credit Crunch Page.Discussion at the June 2008 IASB Meeting picFair Value Measurements Expert Advisory Panel on Valuing Financial Instruments in Inactive Markets Meeting update The staff presented a summary of the first meeting held on 13 June 2008 of the Expert Advisory Panel. The staff noted that the purpose of that meeting was to identify the issues arising on valuing financial instruments when markets are no longer active and that possible solutions will be discussed at future meetings. In addition the staff noted the following No decision was made regarding the form of guidance the panel will provide, e. g. best practice guidance or input for amendment of standards. Subsets of the issues identified will be discussed by a subgroup of panel members at the next meetings in July (measurement issues) and August (disclosure issues). Meeting dates have not moreover been confirmed. The meetings will be held in private sessions with public updates being provided at the July and September Board meetings. The last meeting is expected to be in September 2008. Updates on the activities of the panel are also available on the IASBs website. Discussion of the Fair Value Measurements Project Following the critical point IASB-FASB meeting in April 2008 the Board discussed the way forward in this project. At the joint meeting the IASB decided not to re-debate all aspects of the Fair Value Measurement discussion paper (the DP), i. e. ot to fully re-d ebate FAS 157 Fair Value Measurements on which the DP is based. Instead the Board agreed to redeliberate certain areas of confusion or areas in which FAS 157 had proved difficult to apply. The staff presented an analysis of issues raised in the DP and provided recommendations on whether a particular issue should be redeliberated or not. good aspects of fair value measurement were not discussed at this meeting. The Board agreed to discuss further the topics listed below. These topics will be redeliberated mainly because the Board did not express a preliminary view in the DP and/or comments received on the DP indicated a need for further discussion The exit price measurement objectiveThe Board agreed to consider both entry and exit notions of fair value measurement based on the standard-by-standard review currently performed by the staff. The market participant view In general the Board reaffirmed its preliminary view in the DP. However, the staff was asked to improve the wording in order to address concerns raised by constituents. In particular, it should be clarified how to apply the market participant view in cases where no market exists (for example, liabilities that cannot be transferred). Transfer vs. settlement of a liability The Board agreed to a staff analysis that this is an important cross-cutting issue for other Board projects, particularly, amendments to IAS 37.Transaction price and fair value at initial Day one gains and losses This issue is considered to be interrelated with the entry vs. exit price issue. The principal (or most advantageous) market The Board reaffirmed the preliminary view in principal but noted that questions about the practical application needs to be resolved. Valuation of liabilities Non-performance risk There seemed to be a broad consensus to reaffirm the preliminary view that non-performance risks needs to be considered when measuring the fair value. However, the majority of Board noted that this is an important cross-cutt ing and that there are unresolved issues with regard to presentation (of the counter-entry) and disaggregation. Highest and best useThe staff intends to address comprehensively all issues relating to different markets. Bid-ask spreads Applicability of mid-market pricing to all levels of the hierarchy? The staff noted that the Board still needs to reach a preliminary and that the question of which transaction costs are to be included will be addressed in this context. Issues not discussed Disclosures Redeliberation in light of current market environment Application guidance Redeliberation in light of current market environment Topics not to be redeliberated The Board decided not to redeliberate the following five topics 1. Attributes (characteristics) specific to an asset or liability 2.Whether transaction costs are separate from fair value The staff intends to discuss any outstanding issues in connection with bid-ask spreads. (this sentence relates to bullet 2) 3. Three-level fair value hierarchy Accepted as described in the Discussion Paper without any further deliberations 4. The prohibition of blockage factor adjustments at all levels of the hierarchy The Board had a thorough debate on this issue. One Board member emphasised that the majority of constituents disagreed with the preliminary view expressed in the DP. Finally, there seemed to be a consensus not to redeliberate the issue but to deal with the concerns in the feedback statement.The staff was asked to review the comments received to ensure that the Board has not missed anything in reaching the preliminary view. 5. The unit of account for financial assets and liabilities The staff noted that the topics not to be discussed by the Board are broadly consistent with the principles in IFRSs and that they can therefore be addressed in the exposure draft in a way that considers the concerns raised by constituents and is consistent with FAS 157. Discussion at the July 2008 IASB Meeting Expert Advisory Pa nel on Valuing Financial Instruments in Inactive Markets Meeting update The project manager on the fair value measurement project gave an oral update on the activities of the expert advisory panel.The purpose of this panel is to assist the IASB in reviewing best practices in the area of valuation techniques as well as formulating any necessary additional guidance on valuation methods for financial instruments and related disclosures when markets are no longer active. The panel or subgroup met three times. At the kick-off meeting the panel identified specific issues that panel members felt must be addressed (such as forced transactions, the use of pricing services, illiquid markets). It was noted that there seemed to be consistency in applying the fair value measurement requirements in IAS 39 despite the use of different techniques. The staff informed the Board that there will be a draft document to be discussed end of July on those issues, but that it is not clear yet who will publi sh it. The panel would then turn to appropriate disclosures with the aim to have an exposure draft published in Q4/08.It was noted that there would be ongoing communications with the consolidations project team. Discussion at the July 2008 IASB Meeting 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). Staffs 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 spec ific 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 distinct 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 b e 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 get around 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.Discussion at the September 2008 IASB Meeting Credit Crisis Proposed amendments to disclosure requirements Please see se parate project page on Amendments to IFRS 7 Credit Crisis Discussion at the September 2008 IASB Meeting Expert Advisory Panel on Valuing Financial Instruments in Inactive Markets Update The staff presented the Board with an update on the work of the expert advisory panel formed in response to recommendations from constituents. The panels task is to develop best practice guidance on measurement and disclosures for financial instruments in inactive markets. It was noted that the panel had met six times and will meet again in October. One single document would be published covering both measurement and disclosure. A draft report has just been posted on the IASBs website. The staff informed the Board that although comments would be solicited until 3 October, comment earn would not be published on the IASBs website.Asked by a Board member, the staff confirmed that this non-mandatory guidance would be considered when developing the fair value measurement standard and, hence, might beco me mandatory in the future. Discussion at the September 2008 IASB Meeting Fair Value Measurements Exposure Draft The staff introduced the session by highlighting the objectives and timeline. The purpose of the session was to anticipate the Boards decision on Whether a fair value measurement exposure draft should state that fair value reflects the highest and best use of an asset and Whether blockage factors should be excluded from fair value measurement. Blockage factors The staff started with the second issue on blockage factors.The staff highlighted that it only sought the Boards input on this type of discount, not on other discounts or premia. The staff defined a blockage discounts as a discount that represents a discount to the quoted price of an instrument (usually equity securities) to reflect the reduction in the price if the entity were to sell a large holding of instruments at once. The Board had a lengthy debate on this. Some Board members were interested about ignorin g blockage factors as they would represent a real scotch phenomenon. Others were of an opposite