Norwalk, Conn.: The Financial Accounting Standards Board and the International Accounting Standards Board have each recently issued exposure drafts proposing changes in the standards for fair value measurement and disclosure in U.S. GAAP and International Financial Reporting Standards.
FASB's proposed Accounting Standards Update contains amendments that the 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 joint efforts to ensure that fair value will have the same meaning under U.S. GAAP and IFRS, and that their respective measurement and disclosure requirements will be virtually the same, except for minor differences. The amendments 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 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. "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."
Greg Forsythe, business valuation technical specialist at Big Four firm Deloitte, explained that the proposed changes would affect the following topics covered in ASC 820: highest and best use and valuation premise; measuring the fair value of financial instruments within a portfolio and financial instruments classified in shareholders' equity; blockage factors and other premiums and discounts; and additional disclosures.
The comment period for FASB's proposed update extends through Sept. 7, 2010. The proposed ASU does not yet specify an effective date; however, FASB plans to add one after considering the comments it receives.
In the IASB's draft, the board 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 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. Statement users 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.
"Companies impacted by fair value measurements should stay informed of these proposed changes, particularly as this ED moves swiftly to a finalized standard," said Forsythe. "Investors, regulators and lawmakers are focusing more intently than ever on how companies value assets."
Measurement Uncertainty Analysis Disclosure for Fair Value Measurements is also open for comment until Sept. 7, 2010.
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.
The drafts are available on the boards' Web sites. The IASB also plans to publish on its site a comprehensive summary of the progress of its fair value project, of which these proposals form a part.
