IASB Update
Exposure Draft : Fair Value Measurement
(Due Date for Comments to IASB 28 September 2009)
The proposed guidance deals with how fair value should be measured where it is required by existing standards.
If adopted, the proposals would replace fair value measurement guidance contained within individual IFRSs with a single, unified definition of fair value, as well as further authoritative guidance on the application of fair value measurement in inactive markets.
Reasons for Publishing the Exposure Draft
The proposed IFRS defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. IFRSs require some assets, liabilities and equity instruments to be measured at fair value. However, guidance on measuring fair value has been added to IFRSs piecemeal over many years as the International Accounting Standards Board or its predecessor decided that fair value was an appropriate measurement or disclosure basis in a particular situation.
As a result, guidance on measuring fair value is dispersed across many IFRSs and it is not always onsistent. Furthermore, the current guidance is incomplete, in that it provides neither a clear measurement objective nor a robust measurement framework. The Board believes that this adds unnecessary complexity to IFRSs and contributes to diversity in practice.
The Board’s objectives for publishing the proposed IFRS are:
(a) To establish a single source of guidance for all fair value measurements required or permitted by IFRSs to reduce complexity and improve consistency in their application;
(b) To clarify the definition of fair value and related guidance in order to communicate the measurement objective more clearly; and
(c) To enhance disclosures about fair value to enable users of financial statements to assess the extent to which fair value is used and to inform them about the inputs used to derive those fair values. The proposed IFRS does not require additional fair value measurements.
Overview of the Proposals in the Exposure Draft
· FV definition. The IASB proposes an exit price definition of FV: “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”. · Most advantageous market. FV measurement of an asset or liability assumes sale or transfer in the most advantageous market for the asset or liability available to the entity. · Measurement assumptions. FV measurement of an asset or liability should use the assumptions that market participants would use in pricing the asset or liability. · Highest and best use of an asset. FV measurement of an asset assumes that the sset will be sold to a market participant who will use it at its highest and best use. · Assume transfer of a liability. FV measurement of a liability assumes that the liability is ransferred to a market participant at the measurement date. · Day one gains/losses. In four cases identified in the ED, FV measurement at initial recognition might differ from the transaction price. An entity would recognise any resulting gain or loss unless the relevant IFRS for the asset or liability requires otherwise. · Valuation techniques. The ED proposes guidance on valuation techniques, including specific guidance on markets that are no longer active. Valuation techniques must be consistent with the ‘market approach’, ‘income approach’ or ‘cost approach’. An entity would choose the valuation technique most appropriate in the circumstances and for which sufficient data are available to measure fair value.
· Hierarchy of inputs to valuation. The ED proposes a fair value hierarchy that prioritises into three levels the inputs to valuation techniques used to measure fair value: · Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. · Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).
· Level 3 inputs are inputs for the asset or liability that are not based on observable market data(unobservable inputs). · Disclosures. The ED proposes various disclosures about how assets and liabilities were measured at fair value — “information that enables users of its financial statements to assess the methods and inputs used to develop those measurements and, for fair value measurements using significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income for the period”. The Exposure Draft can be downloaded at:
www.iasb.org Exposure Draft: Prepayments of Minimum Funding Requirement(Proposed Amendments to IFRIC 14)
( Due Date for Comments: 27 July 2009)
IASB has published for public comment an exposure draft of proposed amendments to IFRIC 14. The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The proposed amendments are aimed at correcting an unintended consequence of IFRIC 14, an interpretation of IAS 19 Employee Benefits. As a result of the interpretation, entities are in some circumstances not permitted to recognise as an asset some prepayments for minimum funding contributions.IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction was issued in July 2007 with mandatory application for annual periods beginning on or after 1 January 2008. This exposure draft contains proposals by the International Accounting Standards Board to amend IFRIC 14. The proposals would remove an unintended consequence arising from the treatment of prepayments in some circumstances when there is a minimum funding requirement. The Exposure Draft can be downloaded from: www.iasb.org
IASB Progress Update on IAS 39 Replacement
The IASB published an update on the progress of its comprehensive review of IAS 39 Financial Instruments.. IASB has revised its April 2009 timetable for the comprehensive review of its standard on therecognition and measurement of financial instruments: IAS 39. The revised timetable calls for the publication for public comment of an exposure draft on the classification and measurement of financial instruments during July 2009, with the objective of issuing a standard in time for 2009 year-end financial statements.
IFAC Update Clarity Project Completed; Clarified ISAs / ISQC 1 Featured on New IAASB Website
The IAASB has completed its Clarity Project with the release, in March 2009, of the final seven clarified International Standards on Auditing (ISAs) following the consideration and approval of due process by the Public Interest Oversight Board.With the Clarity Project’s completion, all 36 ISAs and International Standard on Quality Control (ISQC) 1 have been revised in accordance with the IAASB’s clarity conventions. These revisions will make the standards clearer and easier to understand, implement and translate. The clarified standards go into effect for audits of financial statements for periods beginning on or after December 15, 2009.To help in the implementation of the new standards, the IAASB has developed an online Clarity Center (http://web.ifac.org/clarity-center/index). The Center provides a full set of the final standards, marked text showing changes from the original standards, a project history, and commonly asked questions and answers. In addition, the IAASB is developing a set of support modules, which will also be accessible from the Clarity Center, that will feature video and slide presentations highlighting key changes in the standards.
Guidance Issued for Enhancing Corporate Governance
The Professional Accountants in Business (PAIB) Committee has released a new International Good Practice Guidance document, titled Evaluating and Improving Governance in Organizations, to help rofessional accountants in business enhance governance and improve organizational performance. The document includes a framework, a series of fundamental principles, supporting guidance, and references on how PAIBs can contribute to evaluating and improving governance in organizations. The guidance encourages organizations to achieve a balance between conformance with regulations and driving organizational performance. It was designed to complement existing governance codes, such as the OECD Principles of Corporate Governance (2004) issued by the Organization for Economic Co-operation and Development (OECD).The PAIB Committee has also issued a separate document, Preface to IFAC’s International Good Practice Guidance, which sets out the scope, purpose, and due process of the committee’s International Good Practice Guidance series.Both Evaluating and Improving Governance in Organizations and the Preface to IFAC’s International Good Practice Guidance can be downloaded free of charge from the PAIB section of the IFAC online bookstore at: www.ifac.org/store.
IPSASB Reaffirms its IFRS Convergence Strategy with Emphasis on Financial Instruments
The International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC) reaffirmed its commitment to its global convergence program and the development of standards dealing with financial instruments.The IPSASB confirmed that it will continue its full consultation on exposure drafts (EDs): ED 37, Financial Instruments: Presentation, ED 38, Financial Instruments: Recognition and Measurement, and ED 39, Financial Instruments: Disclosures, while recognizing the intention of the International Accounting Standards Board (IASB) to modify aspects of its current standards relating to the measurement of financial instruments. The IPSASB will consider any changes ultimately adopted by the IASB in due course. It can be viewed at: www.ifac.org/MediaCenter/?q=node/view/650
IFAC Board Organizes G-20 Accountancy Summit; Focuses on Initiatives toStrengthen the Profession
The Board of the International Federation of Accountants (IFAC) agreed to hold a G-20 Accountancy Summit on July 23-24 in London to obtain the perspectives of accountancy institutes on how the profession can best contribute to strengthening the global financial system. Board members considered the implications of the financial crisis and heard reports from the chairs of IFAC’s independent standard-setting boards on their initiatives to update and develop new international auditing, education, ethics, and public sector accounting standards, particularly in those areas that would help the profession to address issues related to the financial crisis, and to adopt and promote their adoption and use by a wide group of stakeholders. Such adoption and implementation is vital to improving the transparency of the financial system and is consistent with G-20 recommendations. In addition, the Board discussed how IFAC can best support small and medium practices, including assisting them in addressing issues emerging from the financial crisis and increasing awareness of the role of professional accountants in business in risk management, corporate governance, and transparent financial reporting. It can be viewed at: www.ifac.org/MediaCenter/?q=node/view/648
IFAC 2008 Annual Report Highlights Initiatives during Credit Crisis and Needfor Convergence to Global Standards
The International Federation of Accountants (IFAC) released its 2008 annual report, highlighting initiatives to help restore global financial stability and in addition describing how some of IFAC’s core work developing international standards and guidance became even more relevant in the current economic environment.The report features messages from IFAC’s immediate Past President Fermín del Valle, IFAC Chief Executive Officer Ian Ball, and Public Interest Oversight Board Chair Professor Stavros Thomadakis, who commented, “As in past years, IFAC has continued its commitment to the public. In addition, it includes reports from the chairs of the Consultative Advisory Groups to IFAC’s independent standard-setting boards. A key feature of the report is its Service Delivery section, which compares IFAC’s planned services with those delivered in five areas:
· Standards and Guidance · Promoting Quality · International Collaboration Activities · Representation of the Accountancy Profession in the Public Interest · Information Services The annual report describes the actions taken, over the past year, by IFAC and its standardsetting boards in advancing convergence of auditing, ethics, and public sector accounting standards; revising and updating the independence standards of the Code of Ethics for Professional Accountants; establishing a new framework for International Education Standards; and developing new benchmark guidance for professional accountants in business, as well as for small and medium-sized practices.The IFAC 2008 annual report can be downloaded from the IFAC website at:
www.ifac.org/About/2008-annual-report.php
