The ASB responds to IASB’s November 2006 Discussion Paper (DP) ‘Fair Value Measurements’

As reported in Inside Track 50 the DP sets out the text of an American standard, SFAS 157 and IASB’s preliminary views on certain of the issues that arise. The purpose of the DP is to codify, clarify and simplify existing guidance in IFRS, rather than propose any extension of the use of fair value for financial reporting purposes, but it does have implications for the wider debate on measurement that has now been started as part of the IASBFASB joint project on the conceptual framework (see page 4).

Given the fundamental importance to financial reporting of the basis of measurement to be used, on 5 March the ASB took the unusual step of publishing on its website for comment a draft of its response to the DP. Responses to that draft have been taken into account in the ASB’s formal response to the IASB, which can be accessed from 4 May at www.frc.org.uk/asb.

The ASB's response highlights a number of key messages:

• it acknowledges that the text of SFAS 157 might be useful as a methodology for determining marketbased exit prices, but questions the assumption that fair value should always be equated with exit value;
• it recommends that how the appropriate basis of value is reflected in IFRS should be considered standard by standard;
• it questions the assumption that fair value should always be assessed from the perspective of a market participant rather than that of the entity; and
• it recommends that more prominence be given to the importance of entity specific measures.