The Financial Accounting Standards Board and the International Accounting Standards Board have issued exposure drafts proposing changes in the standards for fair value measurement and disclosure in U.S. GAAP and International Financial Reporting Standards.

Russ Golden

FASB’s proposed Accounting Standards Update sets forth amendments that the two boards believe would improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The proposed update is the result of the boards’ joint efforts to ensure that fair value will have the same meaning under U.S. GAAP and IFRS, and that their respective fair value measurement and disclosure requirements will be virtually the same, except for minor differences in wording and style.

The amendments in the proposed update would apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in shareholders’ equity in the financial statements.

The IASB is also publishing a measurement uncertainty analysis disclosure proposal, “Measurement Uncertainty Analysis Disclosure for Fair Value Measurements,” which is the same as a proposed disclosure requirement in FASB’s proposed update. Both boards will jointly consider the comments received on their respective exposure drafts as they continue their discussions about fair value measurement after the exposure periods end.

“In our memorandum of understanding, FASB and the International Accounting Standards Board set forth the goal of improving and converging our fair value measurement and disclosure requirements,” said FASB technical director Russ Golden in a statement. “The proposed update contains the boards’ ideas on how to achieve this goal, and we encourage our constituents to review and provide input on these proposed amendments and whether they agree that they will indeed accomplish this objective.”

The comment period for FASB’s proposed update extends through Sept. 7, 2010. In IASB’s exposure draft, the IASB has 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 the comments it has received on earlier drafts of the standards, 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 exposure draft “Measurement Uncertainty Analysis Disclosure for Fair Value Measurements” is also open for comment until Sept. 7, 2010.

The FASB is publishing the proposals in the exposure draft “Amendments for Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” Both boards will consider the comments received on the exposure drafts jointly as they continue their discussions about fair value measurement.

The IASB exposure draft can be accessed on http://go.iasb.org/open+to+comment.  The FASB exposure draft can be accessed on www.fasb.org.

The IASB plans to publish on its website a comprehensive summary on the progress of its fair value measurement project, of which these proposals form a part.