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Fair value measurement

Date recorded:

The Boards discussed the effective date and transition requirements for the forthcoming standard (IFRS)/accounting standards update (ASU) (US GAAP) on fair value measurements.

The IASB exposure draft proposed prospective transition but did not propose an effective date for application of the fair value measurement IFRS. Comment letter respondents were generally supportive of the proposed prospective transition; therefore, the IASB staff is not bringing transition as an issue for discussion with the Board. The IASB staff recommended an effective date of 1 January 2013 with early application permitted.

One of the IASB members stated his support for the proposed effective date but questioned when the education materials would be prepared so that jurisdictions where valuation principles were not as advanced as other markets could begin preparation for adoption. The staff mentioned they expected the education materials to be ready for Q3 2011.

Two IASB Board members expressed concern with the proposed effective date as they felt this standard should be considered along with the other standards currently under deliberation with respect to effective dates. However, another IASB member felt the January 2013 date was too long as it was 21 months after issuance whereas the IASB has traditionally required implementation between 6 and 18 months after issuance. He was concerned that precedence may be set where constituents will request in excess of 18 months on future standards. The IASB ultimately agreed with an effective date of 1 January 2013 and to permit early application.

The FASB's proposed ASU would require application as of the period of adoption with a cumulative-effect adjustment to opening retained earnings in the period of adoption if applying the revised guidance would result in a difference in the previously determined fair value measurement (a limited retrospective transition). However, some comment letter respondents disagreed with the limited retrospective transition proposals stating that this approach contradicts the original adoption of FAS 157. The FASB tentatively decided to require prospective application of the measurement guidance with any changes resulting from application treated as a changed in accounting estimate. The disclosure requirements in the ASU would also be applied prospectively.

The FASB also tentatively decided to require an effective date for public companies of the first interim period in the fiscal year beginning after 12/15/2011 (i.e., quarter ended March 31, 2012) and no early adoption for public entities. For nonpublic entities, the effective date will be the annual period ending on or after 12/15/2012. Nonpublic entities may early adopt as of the public company effective date.

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