Fair values and

other issues in
IFRS
Richard Martin
Head of Financial
Reporting
Fair values and other issues

General problems with 2005 transition

Increasing use of fair values

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 dont 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

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

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