FASB, IASB Propose Common Standard for Fair Value Measurement and Disclosure

FASB and the IASB on Tuesday issued separate exposure drafts intended to develop common requirements for measuring fair value and for disclosing information about fair value measurements in U.S. GAAP and IFRS.

The EDs are the result of the boards’ joint efforts to ensure that fair value will have the same meaning in U.S. GAAP and IFRS and that their respective fair value measurement and disclosure requirements will be the same except for minor differences in wording and style, the boards said in separate press releases.

The most significant amendments in FASB’s proposed update focus on subsequent measurement and disclosures. Under the proposals, ASC 820-10-35, Subsequent Measurement, would:

• Be amended to reflect FASB’s decision that the highest and best use and valuation premise concepts are only relevant for measuring the fair value of nonfinancial assets;
• Add guidance for measuring the fair value of financial assets and financial liabilities when a reporting entity has offsetting positions in market risks or counterparty credit risk;
• Add guidance for measuring the fair value of an instrument classified in a reporting entity’s stockholders’ equity; and
• Be amended related to the application of blockage factors and other premiums and discounts in a fair value measurement.

ASC 820-10-50, Disclosure, would:

• Be amended related to disclosure requirements for recurring and nonrecurring fair value measurements;
• Add measurement uncertainty analysis disclosure for fair value measurements categorized within Level 3 of the fair value hierarchy; and
• Add disclosure when a reporting entity uses an asset in a way that differs from the asset’s highest and best use when that asset is recognized at fair value in the statement of financial position on the basis of its highest and best use.

For a complete summary of changes, see Exhibit 1, below.

FASB’s proposed changes apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability or an instrument classified in shareholders’ equity in the financial statements.

The FASB-proposed Accounting Standards Update (ASU), Fair Value Measurements and Disclosures (Topic 820): Amendments for Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS is available here. The IASB’s disclosure proposal, Measurement Uncertainty Analysis Disclosure for Fair Value Measurements, which is the same as the disclosure requirements in FASB’s proposed ASU, is available here. Comments on both proposals are due Sept 7.

The boards say they will jointly consider the comments received on their respective EDs as they continue to discuss fair value measurement after the exposure periods end.

Exhibit 1: Summary of Proposed Amendments to the FASB Accounting Standards Codification

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