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Financial reporting based on IFRS, and notably fair value accounting for financial instruments, has revealed the economic reality of market participants’ positions at an earlier stage than otherwise would have been the case under a more cost basis driven model, the FEE states in it’s response.
“The requirement to account for certain financial instruments at fair value has not caused the financial crisis nor has it been a significant contributing factor”, FEE says.
Nevertheless, practice has shown that fair value accounting is more difficult to apply in illiquid markets and preparers and auditors have had to use significant judgments to arrive at consistent valuations in difficult market circumstances.
Preparers would benefit from additional guidance on fair value measurements when observable market prices are not available.