Fair Value Standard Wins Support From Stakeholders

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By David R. Jones

Constituents of the International Accounting Standards Board mainly have endorsed the requirements in International Financial Reporting Standard 13: Fair Value Measurement—a major tool for assessing liabilities, equities and financial instruments held by a broad array of industries.

The IASB at its Jan. 18 meeting discussed for the first time the post-implementation review (PIR) of IFRS 13, which a notice on IASB’s website said is designed to assess the impacts of the standard’s new requirements on investors, preparers and auditors.

“Overall, many stakeholders noted that they thought IFRS 13 was working well and has brought in significant improvements to financial reporting,” a staff paper drafted for the meeting said.

Defining Fair Value

IFRS 13—which is largely converged with the U.S. Financial Accounting Standard Board’s ASC 820—sets out provisions for fair value measurements (FVMs) by:

  •  defining fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”;
  •  establishing a structure for measuring fair value; and
  •  requiring entities to disclose their FVMs.
The standard doesn’t gauge whether an asset, a liability or an equity instrument actually has been measured at fair value.

“Rather, the measurement and disclosure requirements of IFRS 13 apply when another IFRS Standard requires or permits an item to be measured at fair value,” with some exceptions, the staff paper said.

Gathering Feedback

An IASB project team conducted about 30 meetings in 2016 that garnered feedback from preparers, auditors, investors, standard setters and regulators as part of phase 1 of the IFRS 13 PIR, staff said.

The project team also met with such IASB advisory panels as the Global Preparers Forum, the Capital Markets Advisory Committee (CMAC)—a sounding board for investors—and the Emerging Economies Group (EEG), which comprises accounting professionals from developing countries.

“Some stakeholders gave specific examples of improvements they have seen since IFRS 13 came into effect, relating to consistency of measurement and disclosures provided,” according to the paper.

Still Some Problems

IASB constituents, however, also cited problems with the standard.

Some CMAC members, for instance, complained about boilerplate disclosures in accounting practice, and EEG preparers and standard setters from Asia pointed to different approaches that entities take in applying IFRS 13 to the produce of bearer plants.

Applying IFRS 13

Board member Mary Tokar during the meeting questioned whether criticisms of IFRS 13 are based in the standard’s provisions or how they’re being put into practice.

“It’s hard to unpick whether what we’ve written is the issue or the application of it,” Tokar said.

IASB Vice-Chairwoman Sue Lloyd suggested that the board consider encouraging other accountancy organizations to draft materials on the standard.

Forging Ahead

All 12 board members in attendance voted to move to phase 2 of the PIR.

Members voted 11-1 in phase 2 to tackle four problems with IFRS 13 that constituents have underscored, focusing on:

  •  ascertaining whether disclosures are effective, “an area highlighted by nearly all the stakeholders we spoke with,” a staff paper said;
  •  examining the unit of account and FVM of quoted investments, which some securities regulators said needed clarifying;
  •  assessing how judgment is applied in particular circumstances—as accounting firms requested—such as in determining when a market is active; and
  •  applying the concept of highest and best use (HBU) when measuring the fair value of nonfinancial assets.
IASB defines as HBU “the use by market participants that would maximise the value of the asset or of the group of assets in which the asset would be used.”

Seeking More Information

The board also approved, with one member dissenting, to consider whether additional educational materials are needed for measuring the fair value of biological assets and unquoted equity instruments.

In addition, IASB in an 11-1 vote directed staff to publish a request for information on the four problems—disclosure effectiveness, quoted investments, judgment application and HBU—that stakeholders identified during phase 1.

Staff said they’re not ready yet to recommend potential changes to the standard.

Focus on Urgent Matters

Looking ahead, Tokar urged the board to carry out a thorough evaluation of IFRS 13 but to avoid responding to trivial critiques of the standard.

“We should focus in the PIR on urgent matters rather than completely capturing every criticism,” she said.

To contact the reporter on this story: David R. Jones in London at correspondents@bna.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bna.com

For More Information

Papers drafted for the meeting are available at http://www.ifrs.org/Meetings/Pages/IASB-Meeting-January-2017.aspx.

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