Вы находитесь на странице: 1из 25

Fair Value

and IFRS!

Hello!
We are Group 8
which consist of just
We are here to give our presentation!
3
Abraham Setiawan
Aditya Tri Rahmadi
Tri Atmaja Ragil

1.
Introduction and
Definition

During its short career, the IASB has


already had significant achievements in
regulating financial reporting, notably in
persuading more than a hundred
countries to make use of its standards

4 Aspects of Fair Value (IASBs


Standar Programme)
the definition of fair value
the case for using fair value as the
measurement basis
the degree of support for fair value
in the IASBs standards and other
pronouncements and the way this
has changed over the first twelve
years of the IASBs existence
the forces that have influenced the
IASBs attitude to fair value,
including the effects of the financial
crisis

Definition
of Fair
Value

Fair value is the amount for which


an asset could be exchanged, or a
liability settled, between
knowledgeable, willing parties in an
arms length transaction.
(International Accounting Standard
[IAS] 2, 1993)

3 Ambiguiguities!
First, it refers
to the amount
rather than to
the price, so
that it is
unclear as to
whether
transaction
costs are
included
e.g. Real property

Second, the
definition
does not
specify which
perspective is
assumed to
be involved in
the
transaction, that
of a buyer or of a
seller an entry
value or an exit
value
e.g. the owner of
a large block of
shares

Third, the
definition
does not
specify which
market is to
be used as
the reference
point

Historical cost remained the measurement base used


for most IASC standards, but fair values were used to
modify this in certain special circumstances, such as
impairment testing (as in the lower of cost or market
value rule for inventory measurement),
and to clarify the measurement of an item on initial
recognition when historical cost consideration was
absent (as in the case of donated assets) or when
the consideration did not have a specified monetary
value (as in barter transactions)

For the purposes of measuring a financial


instrument, fair value is an estimate of the price an
enterprise would have received if it had sold the
asset or paid if it had been relieved of the liability on
the measurement date in an arms length exchange
motivated by normal business considerations.
(JWG, 2000, 70)

An enterprise should not adjust the estimated


market exit price to reflect expected costs it
would incur to sell a financial asset or obtain relief
from a financial liability.
(JWG, 2000, 72)

the price that would be received to sell an asset or


paid to transfer a liability in an orderly
transaction between market participants at the
measurement date.
(IFRS 13, May 2011, 9)

Year 1

Year 2

Assets:
Sheep 50M IDR
Land 50M IDR

Assets:
Sheep 100M IDR
Land 100M IDR

Historical Cost

Fair Value

Support
for Fair
Value in
IASB
Pronounce

Alexander (2007), Financial Accounting: An


International Introduction;
Cairns (2007), The Use and Evolution of
FairValue in IFRS;
IFRS No. 2 (2004), on share-based payments;
the IASB appeared to be about to adopt fair
value for measuring liabilities;
the IASB preference to the new FASB standard
on fair value measurement.

Retreat and
retrenchment, 20062013
Treatment of Liabilities
The Revenue Recognition
Revising IAS 37
Conceptual Framework Project

Why has
the IASBs
position
changed?

Why?
The change of structure of the IASB and of the IASC
Foundation (amended to IFRS Foundation in 2010) of which
it is a part was a response to pressure from constituents.
The possible role of financial reporting, particularly fair
value, in causing the banking crisis has been much
debated. A series of papers by Shin and various co-authors
(for example Plantin, Sapra and Shin, 2008) has
demonstrated the possibility that fair value could interact
with regulatory requirements to destabilise the banking
system.
Indeed, the fact that the joint chairman of the FCAG (Hans
Hoogervorst, an economist, regulator and politician rather
than a technical accounting expert) subsequently (2011)
became chairman of the IASB demonstrates the changing
character of the whole organisation.

The present and the


future
As of July 2013, with the discussion paper on
the conceptual framework just released, the
place of fair value in IFRS seems to be assured
but limited.
Although the fair value view may not have
been appropriate for the IASB, there is some
danger of adopting a pragmatic course
without developing a conceptual framework
that will add rigour and consistency to its
decisions

A summary of the
two perspectives

assumptions
The fair value view

The alternative view

Usefulness for
economic decisions
Current and
prospective
investors and
creditors
Forecasting future
cashflows
Relevance
Reliability
Reflect the future

Stewardship
Present
shareholders of
holding company
have a special
status
Future cash flows
may be
endogenous
Past transaction
and events

Implications
The fair value view
Present share
holders have no
special status
Past transaction and
events
Prudence violating
faithful
representation
Cost is an
inappropriate
measurement basis

The alternative view


The information
needs of present
shareholders
Past transaction
and events
Prudence can
enhance reliability
Cost can be a
relevant basis
measurement

Got it?

Maturnuwun
Any questions?