IASB July 2008

The Board has completed the first phase of the standard-by-standard review of fair value measurements currently required or permitted in IFRSs to assess whether the IASB/IASC intended each fair value measurement basis to be a current exit price. On the basis of that review, the Board discussed the measurement objective for assets and liabilities with a measurement basis currently referred to as ‘fair value’.

The first phase of the standard-by-standard review showed that entry and exit prices are equal when they relate to the same asset or liability on the same date in the same form in the same market. The Board therefore considered whether it is necessary to make a distinction between entry prices and exit prices in IFRSs. It tentatively decided to define fair value as a current exit price. The Board will discuss at a future meeting which market to consider for this purpose. The wording of the definition of fair value will reflect the fact that an exit price considers a market participant’s ability to generate economic benefit by using an asset or by selling it to a third party.

The second phase of the standard-by-standard review will be a scope assessment for existing uses of fair value in IFRSs. In situations for which the Board decides that an exit price definition of fair value is not appropriate (eg perhaps at initial recognition), it could, for example, require an entity to use its transaction price or another measurement basis instead of fair value. The Board will make this decision at a future meeting on the basis of the scope assessment. Liabilities will be addressed at a future meeting.