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Basis For Conclusions On IFRS 13 Disclosure

Basis For Conclusions On IFRS 13 Disclosure

Basis For Conclusions On IFRS 13 Disclosure

The disclosures about fair value measurements in IFRSs vary, although many require, at a minimum, information about the methods and significant assumptions used in the measurement, and whether fair value was measured using observable prices from recent market transactions for the same or a similar asset or liability.

The IASB decided that having established a framework for measuring fair value, it should also enhance and harmonise the disclosures about fair value measurements. The IASB decided to limit the disclosures to fair values measured in the statement of financial position after initial recognition, whether those measurements are made on a recurring or non recurring basis, because other IFRSs address the disclosure of fair values at initial recognition (eg IFRS 3 requires disclosure of the measurement of assets acquired and liabilities assumed in a business combination).

The objective of the disclosures in IFRS 13 is to provide users of financial statements with information about the valuation techniques and inputs used to develop fair value measurements and how fair value measurements using significant unobservable inputs affected profit or loss or other comprehensive income for the period. To meet those objectives, the disclosure framework (a) combines the disclosures currently required by IFRSs and US GAAP and (b) provides additional disclosures that users of financial statements suggested would be helpful in their analyses. In developing the disclosures, the IASB used information received from users and preparers of financial statements and the IASB’s Fair Value Expert Advisory Panel.

Basis For Conclusions On IFRS 13 Disclosure

Distinguishing between recurring and non-recurring fair value measurements

The disclosures in US GAAP differentiate fair value measurements that are recurring from those that are non-recurring. The exposure draft did not propose differentiating recurring from non-recurring fair value measurements and required the same information about all fair value measurements. However, users of financial statements asked the IASB to include the same principles for disclosing information about fair value measurements in IFRSs that are in US GAAP. As a result, the boards decided to differentiate the two types of fair value measurements and to describe their differences.

Basis For Conclusions On IFRS 13 Disclosure

Information about fair value measurements categorised within Level 3 of the fair value hierarchy

The boards received requests from users of financial statements for more information about fair value measurements categorised within Level 3 of the fair value hierarchy. The following sections describe the boards’ response to those requests. Quantitative information

The exposure draft proposed requiring an entity to disclose the methods and inputs used in a fair value measurement, including the information used to develop those inputs. That proposal was developed using feedback from users of financial statements and the IASB’s Fair Value Expert Advisory Panel. Although the proposal was not explicit, the IASB intended that the information about the inputs used in the measurement would be quantitative.

Before the amendments to Topic 820, US GAAP required an entity to provide a description of the inputs used when measuring the fair value of an asset or a liability that is categorised within Level 2 or Level 3 of the fair value hierarchy. Topic 820 was not explicit about whether that description needed to include quantitative information.

Users of financial statements asked the boards to clarify that entities must provide quantitative information about the inputs used in a fair value measurement, particularly information about unobservable inputs used in a measurement categorised within Level 3 of the fair value hierarchy. When limited or no information is publicly available, disclosures about such information help users to understand the measurement uncertainty inherent in the fair value measurement.

Therefore, the boards decided to clarify that an entity should disclose quantitative information about the significant unobservable inputs used in a fair value measurement categorised within Level 3 of the fair value hierarchy.

Some respondents to the FASB’s proposed ASU questioned the usefulness of quantitative information about the unobservable inputs used in a fair value measurement because of the level of aggregation required in those disclosures. The boards noted that the objective of the disclosure is not to enable users of financial statements to replicate the entity’s pricing models, but to provide enough information for users to assess whether the entity’s views about individual inputs differed from their own and, if so, to decide how to incorporate the entity’s fair value measurement in their decisions. The boards concluded that the information required by the disclosure will facilitate comparison of the inputs used over time, providing users with information about changes in management’s views about particular unobservable inputs and about changes in the market for the assets and liabilities within a particular class. In addition, that disclosure might facilitate comparison between entities with similar assets and liabilities categorised within Level 3 of the fair value hierarchy.

Basis For Conclusions On IFRS 13 Disclosure

Level 3 reconciliation for recurring fair value measurements

The exposure draft proposed requiring an entity to provide a reconciliation from the opening balances to the closing balances of fair value measurements categorised within Level 3 of the fair value hierarchy. IFRS 7 required such a disclosure for financial instruments after it was amended in March 2009 to introduce a three-level fair value hierarchy, and to require more detailed information about fair value measurements categorised within Level 3 of the fair value hierarchy. In addition, many IFRSs already required a similar reconciliation for all fair value measurements, not only for those that are categorised within Level 3 of the fair value hierarchy.

Some respondents agreed with the proposed reconciliation disclosure because they thought it would help meet the objective to provide meaningful information to users of financial statements about the relative subjectivity of fair value measurements. Other respondents thought that the disclosure requirement would be onerous and did not believe that the benefits would outweigh the costs, particularly for non-financial assets and liabilities. The IASB received similar feedback on the proposed amendments to IFRS 7. However, users of financial statements told the IASB that the disclosures made in accordance with US GAAP and IFRS 7 were helpful, particularly in the light of the global financial crisis that started in 2007. They indicated that the disclosures allowed them to make more informed judgements and to segregate the effects of fair value measurements that are inherently subjective, thereby enhancing their ability to assess the quality of an entity’s reported earnings. Consequently, the IASB decided to require an entity to provide such a reconciliation.

Basis For Conclusions On IFRS 13 Disclosure

Valuation processes

The boards decided to require an entity to disclose the valuation processes used for fair value measurements categorised within Level 3 of the fair value hierarchy (including, for example, how an entity decides its valuation policies and procedures and analyses changes in fair value measurements from period to period). They made that decision because users of financial statements told the boards that information about an entity’s valuation processes helps them assess the relative subjectivity of the entity’s fair value measurements, particularly for those categorised within Level 3 of the fair value hierarchy.

Basis For Conclusions On IFRS 13 Disclosure

Transfers between Levels 1 and 2 of the fair value hierarchy

The exposure draft proposed requiring an entity to disclose the amounts of significant transfers into or out of Level 1 and Level 2 of the fair value hierarchy and the reasons for those transfers. That disclosure was also required in Topic 820. In their discussions, the boards decided instead to require a disclosure of any transfers into or out of Levels 1 and 2. Respondents to the FASB’s proposed ASU generally did not support that proposal because it would require an entity to monitor all transfers on a daily basis, regardless of whether those transfers were significant. In addition, respondents were concerned about the accuracy of information about all transfers because there can be an unclear distinction between less active Level 1 fair value measurements and more active Level 2 fair value measurements.

Basis For Conclusions On IFRS 13 Disclosure

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