An Executive Guide to IFRS: Content, Costs and Benefits to Business

Fair value controversies

This approach has led some people to accuse the Board of working systematically towards a full fair value world where all assets and liabilities were stated at fair value. While it is true that one or two Board members are fully paid up members of the fair value party, no Board member thinks it remotely likely that a full fair value balance sheet could be mandated in the foreseeable future. It should also be borne in mind that the timescale of standard-setting, and the extent of the literature (full IFRS when published in hard copy runs to more than 2,000 pages), mean that even if a particular set of Board members had a strong ideology, they would not be able to move the corpus of IFRS other than fairly marginally during their term on the Board.

Notwithstanding that, if there is one issue that has dominated the first decade of the IASB, it is the use of fair value as a measurement basis. This is, of course, much overstated. The fact of the matter is that at least back to the nineteenth century fair value has been used in financial reporting to provide financial values to transactions that are not denominated in money terms. This happens frequently, for example, when an unincorporated business decides to incorporate. The owners ‘sell’ the existing assets and liabilities to the new company in exchange for shares. Usually the value of the transaction is done at fair value to provide a ‘deemed cost’. Using a measurement basis other than historical cost is also ...