Fair values and other issues in IFRS
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Transcript of Fair values and other issues in IFRS
Fair values and other issues in IFRS
Richard MartinHead of Financial Reporting
Fair values and other issues
General problems with 2005 transition
Increasing use of fair values
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Problems with IFRS in Europe
Problems with IFRS
New for the EU
Different starting points across Europe
Extensive disclosures –
• in areas of subjective measurements such as impairments
• Sensitive areas such as related parties
Complex measurements
Some written in a way that is hard to understand
Sometimes in a language that is hard to translate
Problematic standards
Deferred tax (IAS12)
Pensions (IAS19)
Financial instruments (IAS32 & 39)
Impairments (IAS36)
Provisions (IAS37)
Intangibles (IAS38)
Share based payments (IFRS2)
Business combinations (IFRS3)
What if we don’t like them?
Driven by conceptual framework – needs of investors and definitions of assets & liabilities
Pragmatic arguments by preparers not very effective
Set by independent standards setter
Lesser role for governmental influence
US and EU tensions – the SEC and the Commission
IFRS will not stand still
Keeps evolving – agenda for new standards, plus improvements to others, interpretations
Trends
Framework driven
US convergence
Principles – rules
Fair values and historical costs
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The trend to fair values
Measurement bases in IFRS
Depreciated Cost
Share of net assets (equity accounting)
Value in use (VIU)
Net realisable value (NRV)
Fair value (FV)
Lower of cost and NRV
Recoverable amount (higher of VIU and NRV)
Entity-specific or market values
Exit or entry values
Fair values used when costs fail
Used on initial measurement
Swaps of non-monetary assets – cost of assets, revenue
Business combinations (IFRS 3)
•FV of equity consideration
•Allocation of net assets acquired and goodwill
Share-based payments – value of options granted
Derivatives
Agricultural assets
Provisions
Fair value accounting
Where changes in fair values affect profit for the year
Financial instruments (IAS39)
Investment properties (IAS40) – option only
Agriculture (IAS41)
Where holding the assets for trading/dealing/investment purposes
Revaluations (options)
Property, plant and equipment (IAS16)
Intangible assets (IAS38)
Through equity, but recycled into P&L
Financial instruments – available for sale and cash flow hedges
How far will FV accounting spread?
Measurement project
Business combinations Part 2 – full goodwill and exchange of fair values notions
Insurance contracts - Part 2
Revenue recognition
Full fair value model for financial instruments
Comprehensive income project
Business implications of FV
More costs
Reliability of fair values
Reported results will change
Earlier recognition of profits
Volatility of the results as markets change
Presentation issues to help understanding
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Conclusions
Some conclusions
IFRS are not straightforward - Problematic standards
EU adoption has been difficult
Trend to fair value
Where costs fail
Where changes in FV are very important
Some only as options
Will probably expand, but there are important consequences
