Among a wave of new standards issued last week was IFRS 13 ‘Fair Value Measurement’, which will unite international and US GAAP treatments from 1 January 2013.
The IASB characterised IFRS 13 as a five-year consolidation project that brought together existing requirements around the use of “mark to market” valuations into a new document that will be “nearly identical” to the guidance issued by the US Financial Accounting Standards Boards (FASB).
However volatile market-based valuations were identified by many bankers and analysts as a contributory factor to the global financial crisis, so IFRS 13 also represents the IASB’s response. There was a heavy focus on financial instruments because of the global financial crisis, but IFRS 13 is wider than that, explained board member Warren McGregor in an IASB webcast. “This is a standard that applies to any asset or liability that requires you to make a valuation,” he said.
The new standard does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP, the board said.
Aside from the close alignment with US GAAP, the most significant point within IFRS 13 is the stipulation that the exit price will stand as the single definition for fair value measurement and disclosure.
Pre IFRS 13, the definitions used didn’t match any concrete formulations for buyers or sellers, so companies applied it differently, explained IASB project manager Hilary Eastman in the webcast. The standard-setters wrestled with a number of options before choosing the exit price.
IFRS will apply from 1 January 2013, but early adoption will be permitted. The ISAB will not require disclosure of comparatives going forward when it comes into effect. Further information on IFRS 13 is available from the IASB's fair value measurement page.