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It is noted that the IASB and the FASB will jointly consider the responses to the ED referenced above and also to the FASB’s ED on Amendments for Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ISDA submitted two comment letters in response to these two consultations, given that the impact of the proposals is different for US GAAP and IFRS filers. However, the comments and the solutions proposed by ISDA members to the two exposure drafts are almost identical.
Key Messages:
- ISDA recognises that some fair value measurements use unobservable inputs which inherently lead to some degree of uncertainty. Therefore, ISDA recognises the need for financial institutions to provide users of financial statements with an adequate understanding of the measurement of uncertainties inherent in those instruments categorised as Level 3 in the fair value hierarchy.
- ISDA believes that the existing disclosure requirements achieve the right balance between providing the users of financial statements with information about uncertainty on Level 3 instruments without requiring disclosing a high volume of complex data, which in many cases is not observable and could lead to more subjectivity. Moreover, ISDA is concerned that the proposed ‘quantitative’ disclosure of the effect of correlation would be extremely difficult to implement and highly judgmental, leading to a lack of comparability between institutions. Therefore, ISDA members believe that a ‘qualitative’ disclosure approach would better achieve the Board’s objectives.