IASB, FASB To Resolve Fair Value Differences

by Robin Pilgrim, LawAndTax-News.com, London

02 July 2010

US and International accounting standard setters are working to ensure that their respective fair value measurement standards will be nearly identical, but with 'style' differences.

The Financial Accounting Standards Board (FASB) is consulting on a proposed Accounting Standards Update intended to develop common requirements for measuring fair value and for disclosing information about fair value measurements in US generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS).

The International Accounting Standards Board (IASB) has published for public comment further enhancements to a disclosure proposal on Level 3 fair value measurements that formed part of the IASB’s exposure draft Fair Value Measurement published in May 2009.

In that exposure draft, the IASB proposed a three-level fair value hierarchy that categorizes observable and non-observable market data used as inputs for fair value measurements. According to that hierarchy, Level 3 inputs are ‘unobservable inputs’ used for the fair value measurement of assets or liabilities for which market data are not available.

In response to comments received, the IASB proposes to enhance its original proposal by requiring the measurement uncertainty analysis disclosure to reflect the interdependencies between unobservable inputs used to measure fair value in Level 3. Users of financial statements commented that this information would allow them to assess the effect that the use of different unobservable inputs would have had on the fair value measurement.

The standards in GAAP and IFRS that require or permit fair value measurements are different. An asset, a liability, or an equity instrument that is measured at fair value in GAAP might not be measured at fair value in IFRS and vice versa.

The IASB and FASB have separate projects to address the measurement bases in other standards (for example, the projects to address the accounting for financial instruments and leases).

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