FASB and the International Accounting Standards Board (IASB) on Thursday issued guidance on fair value measurement and disclosure requirements that the boards said in a press release is “largely identical” across IFRS and U.S. GAAP.
The guidance, set out in IFRS 13, Fair Value Measurement , and FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, completes a major project of the boards’ joint work to improve IFRS and U.S. GAAP and to bring about their convergence. The boards said the harmonization of fair value measurement and disclosure requirements internationally also forms an important element of the boards’ response to the global financial crisis.
The requirements do not extend the use of fair value accounting, but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS or U.S. GAAP.
ASU 2011-04 supersedes most of the guidance in Accounting Standards Codification Topic 820 (formerly FASB Statement no. 157), although many of the changes are clarifications of existing guidance or wording changes to align with IFRS 13. It also reflects FASB’s consideration of the different characteristics of public and nonpublic entities and the needs of users of their financial statements. Nonpublic entities will be exempt from a number of the new disclosure requirements.
The amendments in ASU 2011-04 change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments include the following:
- Those that clarify the board’s intent about the application of existing fair value measurement and disclosure requirements; and
- Those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.
In addition, FASB said that to improve consistency in application across jurisdictions, some changes in wording were necessary to ensure that U.S. GAAP and IFRS fair value measurement and disclosure requirements are described in the same way (for example, using the word shall rather than should to describe the requirements in U.S. GAAP).
The IASB said IFRS 13, Fair Value Measurement , will improve consistency and reduce complexity by providing, for the first time, a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS.
“The finalization of this project marks the completion of a major convergence project and is a fundamentally important element of our joint response to the global financial crisis,” IASB Chairman Sir David Tweedie said in a press release. “The result is clearer and more consistent guidance on measuring fair value, where its use is already required.”
“This update represents another positive step toward the shared goal of globally converged accounting standards,” FASB Chairman Leslie Seidman said in the press release. “Having a consistent meaning of the term ‘fair value’ will improve the consistency of financial information around the world.”
The amendments in ASU 2011-04 must be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after Dec. 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after Dec. 15, 2011. Early application by public entities is not permitted. Nonpublic entities may apply the amendments early, but no earlier than for interim periods beginning after Dec. 15, 2011.
FASB prepared a “ FASB in Focus” summary and a podcast on the amendments. The IASB prepared a podcast and a project summary and feedback statement , which explains how the IASB responded to feedback received during the consultation process.
The boards intend to hold a joint webcast introducing IFRS 13 and ASU 2011-04. Further details will be published on both websites shortly.
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