Yes. However, if a more specific definition of fair value is adopted different variants of this measure would need to be discussed. 
 

We believe there is a need to clarify what is meant by fair value before comparing it with other measures and using it as a basis for measurement and recognition. At present there is a difference between the definition of the term in IFRS and the DP and that currently proposed by the FASB. For example, what is the objective of using the term ‘fair value’; is it intended to capture market-based measurements or is it intended to deal with entity-specific measurements?
 

(a) market versus entity-specific measurement objectives, and
(b) differences in defining the value-affecting properties of assets and liabilities.

(See paragraph 52 of the condensed version and paragraph 97 of the main discussion paper.) This proposal and its conceptual implications are the subject of chapters 4 and 5. Do you agree that these are the fundamental sources of differences between asset and liability measurement bases on initial recognition? If not, please indicate the fundamental sources of differences you have identified, and provide the basic reasons for your views. For any different fundamental sources you have identified, please indicate how these might be examined and tested. 

The G100 agrees with the main sources of differences identified for measuring assets and liabilities on initial recognition and consider that the impact of these factors should be discussed more fully than appears in the DP. We have the following concerns:

• whether there can only be one fair value for an asset or liability on initial recognition when market evidence often indicates otherwise;
• the differentiation in respect of transaction costs.

While the G100 generally agrees it is noted that market-based measures relate to the current price (spot price) for the marginal trade of a (generally) specified quantity. Measuring the amount of an asset by applying the spot price does not necessarily reflect a reliable measure of its value. This is particularly so where fair value is seen as an entity-specific measure. 

The proponents of ‘fair value’ suggest that two entities that own identical assets should report them at the same amount in their financial statements (where initially recognizing them at the same point in time), eliminating what has been called ‘entity specific values’. This , it has been suggested, will enhance comparability. 

However, the term ‘entity specific’ contains an important ambiguity. It has been defined in the Discussion Paper as a ‘measurement of an asset or liability that is based on the expectations of management of an entity’. On that definition it is difficult to defend ‘entity specific’ measurement bases, since financial reporting should reflect the economic resources controlled by an entity and the claims on those resources, mere expectations do not affect these resources.

However, if it is acknowledged that economic constraints and opportunities differ between entities, the case that similar assets might be reported at different amounts is plausible. For example, one airline may acquire aircraft in sufficient quantity that it obtains a large discount. TThis may result in those aircraft being recognized at a lower amount than another airline that acquires substantially fewer aircraft and does not receive the same discount. Similar asymmetrical outcomes may also exist between a wholesaler and retailer holding the same goods. The assertion that these differences in value are attributable to differences in expectation is contested, rather it is suggested that the differences are due to observable facts.
 

No. The presumption in the DP is that market value measures are superior to entity-specific measures which may also include the use market values. However, there seems to be a lack of argument to support the assertion that market value measures are superior.
 

In our view changes in the entity’s credit ratings are reflected in the market value of its liabilities. However, we disagree that the credit risk of the entity should be reflected in the measurement of liabilities in its financial statements. Credit risk at the time of a contract will be reflected in the terms of the contract including the ongoing servicing cost. In addition, the entity is obliged to settle the contracted amount of a liability and not the market value of the liability.
 

The G100 is concerned that the conclusions are based on the presumption there is an efficient market which provides a single fair value. Evidence from the operation of actual markets indicates that this proposition is not necessarily the case. 
 

The G100 is concerned about the approaches to transaction costs. We accept that if market-based measurement is used then recoverability of costs incurred may be used as a basis for determining the treatment of transaction costs.

In most cases the use of market values would preclude the capitalization of transaction costs. However, where an entity acquires an asset with the intention to consume all its services over its economic life (whether market-based or entity-specific measures are adopted) it will seek to recover all of its costs (including transaction costs) and earn an acceptable return on those costs irrespective of their nature and type. 
 

The G100 does not believe that it is simply a matter of relevance and reliability and that other qualitative characteristics of information such as comparability, understandability need to be considered in the context of achieving accountability to shareholders and satisfying the objectives of financial statements.
 

While the G100 has no major objections to this discussion we believe it is necessary to illustrate and explain what is meant by ‘sufficient reliability’ including for what purpose and for whom the measurements are being reported.
 

The G100 is not convinced that fair value is the most relevant measure on initial recognition.
 

Please provide explanations for your views on these questions if they differ significantly from the conclusions and supporting arguments presented in the paper. 

Please provide reasons for any disagreements, and any advice you may have as to additional analysis or research that you believe should be carried out.

The G100’s main concern is the presumption as to the appropriateness of fair value in preference to what is described as historical cost. It is our view that in an efficient market the historic cost of say, an asset, and the fair value of that asset necessarily coincide at initial recognition. The principal issue is how to address those cases where at acquisition there is a difference between historic cost and fair value.
 

Yes. However, if a surrogate measure needs to be used it may be necessarily to address whether fair value is the most appropriate measure in the circumstances.
 

No. The G100 considers that there are too many components to the hierarchy and prefers an approach closer to that proposed by the FASB with fewer levels in the hierarchy.
 

No.