FASB and IASB Find Common Ground on Fair Value Accounting

At a recent meeting, the IASB and FASB found some consensus on measuring securities and other instruments at fair value as their project to converge US GAAP and IFRS proceeds. The IASB and FASB have completed their discussions about the fundamental principles of fair value measurement. The FASB will publish an exposure draft of amendments to Topic 820 (Fair Value Measurements and Disclosures) in the second quarter of 2010. The IASB will consider the need to re-expose any of the proposals in its exposure draft Fair Value Measurement at a future meeting.

Further, IASB staff are developing educational material to accompany an IFRS on fair value measurement. This educational material will describe at a high level the thought process that one might go through to meet the objective of a fair value measurement. The IASB and FASB staff will liaise during its development.

At the meeting, the Boards discussed disclosures about fair value measurements. The Boards tentatively decided to define class on the basis of three principles. First, an entity should determine the appropriate classes of assets and liabilities based on the nature, characteristics and risks of the assets and liabilities and their classification in the fair value hierarchy. Second, a class of assets and liabilities will often require greater disaggregation in the statement of financial position than the entity’s line items. Third, judgment is needed to determine the appropriate classes of assets and liabilities.

The Boards also tentatively decided to require an entity to disclose its policy for determining when transfers between levels of the fair value hierarchy are recognized, and to disclose information about fair value measurements only after initial recognition. For assets and liabilities recognized at fair value at each reporting period, the Boards would require an entity to disclose a reconciliation of activity within Level 3 of the fair value hierarchy and information about transfers between Levels 1 and 2.

They would also require disclosure of fair value information by level in the fair value hierarchy for items that are not measured at fair value in the statement of financial position. But would not require the inclusion of guidance for assessing the significance of an input or significant changes in fair value.

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