On 12 May 2011 the IASB issued IFRS 13 Fair Value Measurement. IFRS 13, which is effective from 1 January 2013, defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 does not determine when an asset, a liability or an entity’s own equity instrument is measured at fair value. Rather, the measurement and disclosure requirements of IFRS 13 apply when another IFRS requires or permits the item to be measured at fair value (with limited exceptions).

The fair value measurement project was part of the Memorandum of Understanding between the IASB and the US national standard-setter, the Financial Accounting Standards Board (FASB). This joint work resulted in IFRSs and US generally accepted accounting principles (GAAP) having the same definition and meaning of fair value and the same disclosure requirements about fair value measurements.

INDIVIDUAL ASSIGNMENT – 20% (Due date week 9, 21st September, 2011)

Before IFRS 13 was issued, the requirements for measuring fair value and for disclosing information about fair values were dispersed across many standards and in many cases those standards did not articulate a clear measurement or disclosure objective. The Board developed IFRS 13:

to reduce complexity and improve consistency in the application of fair value measurement principles by having a single set of requirements for all fair value measurements;

to communicate the measurement objective more clearly by clarifying the definition of

fair value;

to improve transparency by enhancing disclosures about fair value measurements;

and

to increase the convergence of IFRSs and US GAAP.

IFRS 13 is to be applied prospectively and, although its application is only mandatory from 1 January 2013, entities may choose to apply IFRS 13 earlier.

Source:

A. Explain the purpose of the the Memorandum of Understanding between the IASB

and the US national standard-setter, the Financial Accounting Standards Board (FASB).

B. How did IFRSs and US generally accepted accounting principles (GAAP) define fair

value prior to the issue of IFRS 13 and what were the disclosure and measurement requirements of IFRSs and US generally accepted accounting principles (GAAP) with regard to fair value prior to the issue of IFRS 13?

C. Identify and explain four reasons as to why the IASB developed IFRS 13, particularly

with regard to the global financial crisis. Particular reference should be made to the goals of the fair value measurement project.