The G100 supports the proposal to have a single point of reference and guidance on the application of fair value measurements as required in various IASB Standards. This should not, however, be interpreted as support for the same approach being taken for assets and liabilities. The G100 considers that what constitutes an appropriate measure of fair value will depend on the circumstances in which the fair value is being determined.
 

Yes. The G100 does not support the universal application of an exit value approach to determining fair values. The guidance in SFAS 157 reflects a North American environment where markets are more developed and the use of fair values in financial statements is not as common as occurs in IFRSs. The guidance in IFRSs focuses more directly on the requirements of the particular circumstances and application of the Standard. It is suggested that the principles which apply in these examples (as occurs in respect of IAS 40 'Investment Property') be reflected in a single source of guidance.
 

The reliance on exit prices as a measure of fair value is not appropriate in all circumstances. The G100 believes that this does not give sufficient weight to the intentions of management and directors.

The financial statements are those of the reporting entity and as such they should reflect the perspective of the entity as a going concern (continuity of existence) rather than that of a hypothetical market participant. Seeking the perspective of an external market participant introduces a degree of artificiality to the process of determining a fair value. Whether an exit price or entry price is used to determine fair value to the entity will depend on the circumstances and management's intention in relation to the asset/liability.
 

The G100 agrees that in an informed market entry prices are an appropriate basis for determining fair values.
 

No. The G100 believes that the term 'fair value' is an established concept in accounting terminology and has been widely used in accounting standards for several years, in particular, in IFRSs. While the concept of fair value may have its defects it is understood by preparers and users of financial statements. The G100 considers that as a broad concept 'fair value' may be based on an exit price in some circumstances and an entry price in other circumstances. It is more appropriate for the approach to determining fair values to reflect the intentions of management and the point of view of the entity rather than mandating one approach in preference to others.
 

In most cases the objectives for the use of fair values in IFRS and in SFAS 157 are similar. The G100 supports the standard-by-standard review of the existing fair value requirements in IFRSs because the blanket adoption of the SFAS 157 approach may lead to different outcomes than occur at present. If this were to occur the guidance would, in effect, be amending existing requirements.
 

No. The G100 has concerns about the notion of a market participant and the relevance of this perspective to determining measurements included in the entity's financial statements. This is particularly the case where markets are not deep and liquid ' a situation which exists in respect of most assets and in most jurisdictions.
 

Yes.
 

No. The G100 believes that the fair value of a liability is the amount that the entity is required to pay in order to settle it. Transfers of liabilities to third parties is not a common means of discharging of most types of liabilities. In the vast majority of cases it is management's intention to settle a liability rather than to discharge it by seeking a market transfer.
 

Yes. Other than some financial liabilities there are few instances in IFRSs of liabilities being measured at fair value.
 

The G100 considers that the transaction price is the most appropriate measure of assets and liabilities at initial recognition. However, in a business combination, the process of allocation of the transaction price may use inputs that are not observable in a market to determine the fair value of some items.
 

The G100 considers that the proposals in the DP, taken with the guidance in IAS 39, would result in an in-exchange exit price in respect of individual financial instruments.
 

Yes, where the markets are deep and liquid. In other cases it is problematical as to what constitutes the most advantageous market and whose perspective is adopted: that of the entity or that of a market participant.
 

This will depend on the circumstances and the intentions of management. For example, while the attributes relevant to a market participant will be relevant if the intention is to dispose of an asset those attributes may not be relevant where the asset services will be consumed by the entity or where the asset is an integral part of a group of assets.
 

While transaction costs are often integral to the acquisition of an asset and the settlement of a liability they are most often an attribute of the transaction rather than the underlying item and a component of the fair value.
 

Yes.
 

The G100 agrees that the two measures are different. As indicated above, the G100 believes that the value in use concept is entity specific and better reflects management's intentions than the SFAS 157 formulation which adopts the perspective of a market participant.
 

The fair value hierarchy is appropriate in the context of SFAS 157. However, we believe greater emphasis should be given to determining entity-specific measurements rather than relying on assumptions of presumed market participants as occurs in Level 3.
 

Yes, in concept. However, there may be considerable difficulties in practice when one needs to identify a market participant and the attributes that a market participant considers relevant in applying Levels 2 and 3. Examples of the application of the hierarchy for Levels 2 and 3 would provide valuable guidance to preparers.
 

Yes.
 

The measurement should be that which best represents the fair value in the circumstances and, as such, should be determined as a price within the bid-ask spread. It is not appropriate to specify where in the range the price is determined.
 

No. See response to Question 21.
 

If the principle applied in Question 21 is adopted then that principle should apply to each of the levels of the hierarchy. The specification of 'rules' or assumptions of convenience should be avoided.
 

The disclosure requirements are extensive, particularly in respect of Levels 2 and 3, and adequate in explaining how the fair value measurements have been determined. However, we question the usefulness of disclosures relating to the assumptions etc which are made in applying and complying with the requirements.
 

While the guidance is adequate in respect of Level 1 of the hierarchy the G100 suggests that guidance in respect of Levels 2 and 3 should be expanded to include illustrations of applying the Standard in specific cases. This is particularly so for those jurisdictions where deep and liquid markets for a wide range of assets and liabilities are not common.
 

Refer response to Question 25.