IASB Publishes Educational Guidance on the Application
The International Accounting Standards Board (IASB) today published educational guidance on the application of fair value measurement when markets become inactive. The educational guidance takes the form of a summary document prepared by IASB staff and the final report of the expert advisory panel established to consider the issue. The expert advisory panel was formed to assist the IASB in reviewing best practices in the area of valuation techniques and formulating any necessary additional guidance on valuation methods for financial instruments and related disclosures when markets are no longer active.
The summary document sets out the context of the expert advisory panel report and highlights important issues associated with measuring the fair value of financial instruments when markets become inactive. It takes into consideration and, is consistent, with recent documents issued by the U.S. Financial Accounting Standards Board on 10 October and by the Office of the Chief Accountant of the U.S. Securities and Exchange Commission (SEC) and FASB staff on 30 September.
The report of the expert advisory panel is a summary of the seven meetings of experts who are users, preparers and auditors of financial statements, as well as regulators and others. In the report, the panel identifies practices that experts use for measuring the fair value of financial instruments when markets become inactive practices for fair value disclosures in such situations. The report provides useful information and educational guidance about the processes used and judgements made when measuring and disclosing fair value.
The IASB has also used the work of the panel to address the issues of disclosure, an area identified by the Financial Stability Forum (FSF) along with fair value measurement and off balance sheet accounting. The feedback from the panel was incorporated in the preparation of the exposure draft proposing improvements to IFRS 7, Financial Instruments: Disclosures, and will be used in the development of the forthcoming standard on fair value measurement.
Commenting on the publication of the report, Sir David Tweedie, Chairman of the IASB, said:
The expert advisory panel has provided useful input to a number of projects and we are moving quickly to incorporate their valuable contributions into our standards. Round-table discussions in Asia, Europe and the United States, to be held jointly with the FASB, will provide additional opportunities to gather views on where further enhancements may be required. Added to this, the joint IASB - FASB high level advisory group now being set up will provide advice to both boards on the reporting lessons from the credit crisis.
The educational guidance can also be downloaded from the IASB website: http://www.iasb.org/currentprojects/iasbprojects/fairvalue measurement.