From an IFRS perspective, IFRS 13 provides significant fair value
guidance as, for the first time there is a precise definition of fair value
and a single source of fair value
measurement and disclosure requirements (U.
While the changes made to fair value
accounting may seem like yesterday's news, it is still important to maintain a strong control environment and robust documentation over the valuation of financial instruments in order to ensure reliable and transparent accounting.
The authors indicate that the latitude afforded entities to assign fair values
to assets and liabilities means that the most important "principles" in mark-to-market accounting are the ethical principles of preparers and auditors who estimate and attest to the fair values
reported in financial statements.
Few accounting issues have generated as much controversy as the use of fair value
measurements, which are in some cases required and in other cases permitted under U.
Requiring fair-value measurement of certain debt and equity marketable securities with readily determinable fair values
FASB has raised the bar for disclosure required when the fair value
option is in play so that investors, analysts and other financial statement users will be able to clearly understand the extent to which the option is used and how changes in fair values
are reflected in the financial statements.
For example, changes in fair values
of securities portfolios can arise from movements in interest rates, foreign-currency rates, and credit quality, as well as purchases and sales from the portfolio.
Since fair value
accounting methods and assumptions will vary," said Tim E.
Specifically, there are two major concerns: first, the earnings volatility the business combination accounting procedures create, and second, obtaining timely and accurate fair value
measurements for assets acquired and liabilities assumed in the business combination.
This has been accentuated by the recent meltdown in the credit and subprime markets, making the determination of fair values
for certain asset-backed securities extremely difficult to determine because there has been a disconnect between supply and demand for subprime asset-backed securities.
In other words, fair value
will no longer be based on what you pay for something; it will now be based on what you can sell it for, also known as its "exit price.
The AICPA recently issued two Interpretations of Statements on Auditing Standards regarding auditing fair values