IASB and FASB issue fair value guidance

The newly issued requirements do not extend the use of fair value accounting, but provide guidance on how it should be applied by other standards within IFRSs or US GAAP.

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) has issued new guidance on fair value measurement and disclosure requirements for International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (GAAP). It completed convergence work on the topic last month, as reported in Private Equity Manager.

IFRS 13 Fair Value Measurement will provide, for the first time, a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs.

The guidance changes the wording used to describe the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments include the following:

  • Those that clarify the board’s intent about the application of existing fair value measurement and disclosure requirements; and
  • Those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.

Additionally, the guidance focuses on the different characteristics of public and non-public entities with non-public entities will be exempt from a number of the new disclosure requirements. For non-profits, the new requirement that companies must now disclose how they measure the value of their assets when it's either hard or impossible to sell them in active markets.

The guidance, set out in IFRS 13 Fair Value Measurement completes a major project to bring about convergence. Completion of the project is the culmination of more than five years’ work to improve and align fair value measurement and disclosure requirements.

“The result is clearer and more consistent guidance on measuring fair value, where its use is already required,” said David Tweedie, chairman of the IASB, in a statement.

The harmonisation of fair value measurement and disclosure requirements internationally also forms an important element of the boards’ response to the global financial crisis.

“Having a consistent meaning of the term fair value will improve the consistency of financial information around the world,” said Leslie Seidman, chairman of the FASB, in a statement.  “We are also responding to the request for enhanced disclosures about the assumptions used in fair value measurements.”