Fair Value Measurement

FASB and IASB - Fair Value Measurement Project

Since October 2009, the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) have been collaborating on a joint project to merge fair value measurement standards set by each board. This collaboration forms part of the Memorandum of Understanding between the two Boards (McGuinness & DeMontigny, 2010). The project’s objective is to eradicate dissimilarities between the IASB Exposure Draft (ED), issued March 2009, and the Accounting Standards Codification (ASC) Topic 820 (formerly known as Financial Accounting Standards FAS 157 issued in 2006). The ED is similar but not the same as U.S. GAAP (Generally Accepted Accounting Principles). One of the goals of the project is to establish equivalent fair value guidance in both U.S. GAAP and IFRS (International Financial Reporting Standards). To achieve the goal, FASB is willing to propose modifications to U.S. GAAP guidance by issuing a proposed Accounting Standards Update (ASU) that will contain amendments to ASC 820 during the second quarter of 2010, which may be necessary to accomplish the converged standard.

The fair value measurement project affects areas, which allow fair value to be used when recording transactions relating to assets and liabilities for entities classified as “investment companies.” Some of the following are fair valued transactions and areas: banking and investors accounting for derivative instruments and hedging activities, purchasers of business combinations, recording goodwill and intangible assets, and testing for impairment. International businesses, investors, creditors, and stockholders are concerned about the proposed changes for IFRS. Currently, IFRS’s fair value definitions are scattered throughout the standards; therefore, the placement of one universal definition could have severe ramifications for those who use fair value measurements.

The expectation is U.S. GAAP will undergo significant...