The measurement of fair value, along with any related disclosures, is an important area of focus for accountants, regulators, investors, and shareholders. In order to streamline fair value measurement and disclosure requirements, the International Accounting Standards Board (IASB) developed IFRS 13, which became effective in 2013. However, the quality of fair value disclosures on the financial statements of banking, non-banking, commercial, and service companies is still hotly debated. Several regulators (including the European Securities and Markets Authority [ESMA]) have identified numerous shortcomings, commenting on the adequacy, appropriateness, comparability, and specificity of disclosures provided by various entities. The IASB itself has also conducted an implementation review, with the following notable findings:
- The methodologies and assumptions to determine fair values including counterparty risk adjustments are not tailored for the entity.
- Counterparty risk adjustments are not explained in sufficient detail.
- The sensitivity analysis included is too general, if not inadequate, considering the range of financial instruments used by the entities.
- Calibration and adjustments, as applied to market price when market price is not a true reflection of fair values, are not adequately explained in the financial statements.
- Judgments applied by the entity to determine the unit of account are not disclosed or not disclosed adequately.
Next, the IASB invited stakeholders to provide their comments on IFRS 13 implementation issues before 22 September 2017. They received 67 letters, whose unifying themes were that the following should be included in further IFRS 13 guidance:
- more clarity regarding the application of unit of account as fair values of investment in subsidiaries, joint ventures, and associates
- specific guidance on applying the best-use concept
- references to terms for valuation adjustments that are already widely used, such as credit valuation adjustment (CVA), debit valuation adjustment (DVA), and funding valuation adjustment (FVA)
- help on how to consider the level of aggregation for level 3 disclosures, e.g. illustrative examples
IFRS 13 has generally been applied well by the entities, as has been acknowledged in the comment letters of standard setters, professional firms, and professional accounting institutes. However, it is yet to be seen what level of additional guidance is developed by the IASB to respond to the common themes from this feedback. The implementation timeframe may be another challenge, given that the implementation of other new standards like IFRS 9 and IFRS 15 is already occupying the attention of senior management and stakeholders.
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