FAIR VALUE MEASUREMENTS AND DISCLOSURES FAIR VALUE MEASUREMENTS AND DISCLOSURES UNDER DIFFERENT FINANCIAL REPORTING FRAMEWORKS

FAIR VALUE MEASUREMENTS AND DISCLOSURES UNDER DIFFERENT FINANCIAL REPORTING FRAMEWORKS

1. Different financial reporting frameworks require or permit a variety of fair value measurements and disclosures in a financial report. They also vary in the level of guidance that they provide on the basis for measuring assets and liabilities or the related disclosures. Some financial reporting frameworks give prescriptive guidance, others give general guidance, and some give no guidance at all. In addition, certain industry-specific measurement and disclosure practices for fair values also exist.
2. Different definitions of fair value may exist among financial reporting frameworks, or for different assets, liabilities or disclosures within a particular framework. For example, AASB 139 Financial Instruments: Recognition and Measurement, defines fair value as “the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm’s length transaction”. The concept of fair value ordinarily assumes a current transaction, rather than settlement at some past or future date. Accordingly, the process of measuring fair value would be a search for the estimated price at which that transaction would occur. Additionally, different financial reporting frameworks may use such terms as “entity-specific value”, “value in use”, or similar terms, but may still fall within the concept of fair value in this Auditing Standard.
3. Different financial reporting frameworks may treat changes in fair value measurements that occur over time in different ways. For example, a particular financial reporting framework may require that changes in fair value measurements of certain assets or liabilities be reflected directly in equity, while such changes might be reflected in income under another framework. In some frameworks, the determination of whether to use fair value accounting or how it is applied is influenced by management’s intent to carry out certain courses of action with respect to the specific asset or liability.
4. Different financial reporting frameworks may require certain specific fair value measurements and disclosures in a financial report and prescribe or permit them in varying degrees. The financial reporting frameworks may:

(a) prescribe measurement, presentation and disclosure requirements for certain information included in the financial report or for information disclosed in notes to a financial report or presented as supplementary information;

(b) permit certain measurements using fair values at the option of an entity or only when certain criteria have been met;

(c) prescribe a specific method for determining fair value, for example, through the use of an independent appraisal or specified ways of using discounted cash flows;

(d) permit a choice of method for determining fair value from among several alternative methods (the criteria for selection may or may not be provided by the financial reporting framework); or