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IFRS 13 Fair Value Measurement | ICAEW
The author will do his best not to disappoint. In that context, our activities today bear only a passing rela- tionship to the work performed by our predecessors. At the outset, it should be understood that those concepts, as used in both IFRS and generally accepted accounting principles GAAP , are merely a subset of the more generalized experience developed in the derivation and application of fair market value in tax practice in many countries; while the names are confusingly similar, the con- cepts are very different.
Until quite recently, most valuations pertained, in one way or another, to business transactions. In fact, there have been three distinct waves of interest in valuation. The original use was not for financial reporting but to determine tax liabilities. In those eras, a valuator, serving as a tax assessor, could be a very important individual.
Later, in the year 10 A. During the past five decades, taxation of capital gains has become almost univer- sal, leading to intensification in the use of tax valuations. Business Transactions The second use, which soon followed, was to obtain neutral and unbiased conclusions relating to actual or proposed business transactions. As part of the transaction, all the assets of the two entities, in Canada, London, and at sea, had to be valued. While there are almost always parties with differing interests in business, when it comes to taxes, appraisers have to be particularly careful not to become advocates.
Clients want low figures for property taxes and either high or low, depending on the circumstances, for income taxes. Within the bounds of professional practice, valuators always try to help their clients. By the second half of the twentieth century, the profession in much of the world had split into three branches: real-estate appraisers, business valuators, and security analysts.
The contributors to this book include all of them. Financial Reporting After centuries, a recent, third step in the use of valuations has arrived: the push by ac- counting regulators to incorporate fair values into financial statements. Businesses have long been perceived by investors as always looking for the most favorable accounting and finan- cial reporting treatments so as to convey as optimistic an outlook as possible.
The increasing use of fair value information is perceived by regulators, analysts, and investors as a more objective approach to financial reporting, a tool that may help or hurt the entity.
At the time of writing March , it appears that the push for rapid convergence, followed by conversion, has slowed down. This chapter deals with the subject as it is currently conceived and used. IASB, however, has announced that an exposure draft for a new IFRS standard on fair value measurement will be issued in the second quarter of This is anticipated to follow closely Statement of Financial Accounting Standards SFAS with some variations; the expected differences are set out in the appendix to this chapter.
Therefore, any fair value conclusions are far from precise and perhaps not even totally reliable. Analysts, accountants, and standard setters have trouble with the idea that the same asset can have different values for different owners or for different purposes. After the profession had spent over years developing Fair Market Value, in June , FASB introduced fair value with SFAS , followed in September with a new definition in SFAS , which totally changed the fundamental concept and instituted a brand-new approach to value, as discussed subse- quently.
In general, IASB has been an acquiescent follower. Professional judgment is always involved in a valuation, even if only with respect to knowledge of the asset or business; no one would hire a real estate specialist to determine the fair market value of antique furniture, nor a financial expert for insurable values of machin- ery or equipment. However, these distinctions, while well known and understood, deal only with training and experience.
A different, also important, kind of judgment, which users of valuation information often disregard, is that normally there is really not a single answer but a range of correct answers in any specific valuation situation, whether for real estate finan- cing, placement of insurance, or an allocation of the purchase price in a business combina- tion. Most end up with a single-point estimate, a number that is sometimes carried to five significant figures; such deterministic answers actually promote confidence because of their seeming precision.
However, in our view, this aura of precision is the cause of much of the discussion regarding weaknesses in fair value, its determination, and its use in financial reporting. In the course of an assignment, every skilled appraiser inevitably has to make many in- dividual decisions. These choices—and they are choices—rarely show up in the narrative reports and certainly are invisible to those reading them.
If two equally skilled valuators were given the same assignment but did their work entirely independently, it should not surprise anyone that their conclusions may differ. The target audiences for the realities of valuation have to be 1 setters of accounting standards; 2 auditors who try to make sure that complex accounting rules are being faith- fully followed; and 3 preparers of financial statements.
That the same asset can have far differing values to various people for diverse purposes is not yet fully accepted. These definitions acknowledge that different premises of value can coexist depending on the purpose of the assignment and the interests of the parties while insisting that the perspectives of both buyer and seller had to be explicitly recognized. Therefore, various views about the future outlook still could result in diverse conclusions of value. Business Combinations In a business combination, valuators should deal with the actual economics of the spe- cific transaction. A number of IFRSs, which at the time of writing are still in force, use the next defini- tion.
However, between this definition of Fair Value and that of Fair Market Value, there are two key differences; they are equally impor- tant in the way the terms are defined and used and they cause severe dislocations to the usual concepts of valuation. Richard F. Steven M. Professor Gary E. Nonprofit Asset Management. Matthew Rice. Cristina Agopian. How to write a great review. The review must be at least 50 characters long. The title should be at least 4 characters long.
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Please review your cart. You can remove the unavailable item s now or we'll automatically remove it at Checkout. Remove FREE. Unavailable for purchase. Continue shopping Checkout Continue shopping. Chi ama i libri sceglie Kobo e inMondadori. Choose Store. Appropriate for anyone involved professionally with finance—managers, accountants, investors, bankers, instructors, and students—this guide draws on a stellar panel of expert contributors from fourteen countries who provide international coverage and insight into a diverse range of topics, including: Fair Value in implementing IFRS Market Approach Income Approach—Capitalization and Discounting Methods Economic and Industry Conditions Cost of Capital Financial Statement Analyses Impairment Testing Intellectual Property Rights patents, copyrights, trademarks Projecting Financial Statements Liabilities Customer Relationships Share-based Payment Plant and Equipment Guide to Fair Value Under IFRS is the first international valuation book of its kind.
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Wiley Guide to Fair Value Under IFRS
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