21 October 2009

EFRAG comments on the IASB’s Exposure Draft on Fair Value Measurement

EFRAG supports most aspects of the IASB proposal to define fair value, but thinks it should only apply to financial assets and financial liabilities until there has been a public consultation on its use for non-financial assets and liabilities

EFRAG’s comments can be summarised as follows:

 

EFRAG broadly support the fair value measurement framework described in the ED in so far as it relates to financial assets and financial liabilities that are required by existing IFRS to be measured at fair value. However, EFRAG has concerns relating to certain aspects of the proposal as it applies to such assets and liabilities. In particular:

·          EFRAG does not agree with the proposal that the fair value of a liability should on all occasions, and for all liabilities, reflect non-performance risk. In their view, when fair value is being estimated on initial recognition of a liability, it should reflect non-performance risk only when that risk is reflected in the transaction price; and, when fair value is being estimated on subsequent re-measurement of a liability, that fair value should reflect changes in non-performance risk only if the liability is held for trading purposes and actively traded.

·         EFRAG does not support the proposal that the reference market for determining the fair value of a financial asset or financial liability should be the most advantageous market to which the reporting entity has access. In their view, the reference market should be the market which the reporting entity would usually use.
However, EFRAG does not support the application of fair value as defined and described in this ED to all non-financial items required by existing IFRS to be measured at fair value.

 

·         EFRAG understands that the IASB has carried out a review of each reference in existing IFRS to ‘fair value’ to consider whether those references are references to fair value as described in the ED. Nevertheless, the ED proposes that almost all the existing references in IFRS to fair value should be treated as references to fair value as described. For the reasons summarised briefly above, they do not agree with that conclusion, but perhaps more fundamentally they believe it is really important that the IASB should reconsider the work it has done and the conclusions it has reached on this issue, and then subject the results of that reconsideration, together with the accompanying reasoning, to public consultation and debate.

 

 

Press release

 

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