Determining the fair value of financial instruments under IFRS in current market conditions
London - 13 DEC 2007 - The current market conditions of the "credit crunch" and reduced market liquidity present significant challenges for users, preparers and auditors of financial statements in relation to the valuation and reporting of financial assets and liabilities. Owing to the widespread effect of the conditions, these challenges are not confined to financial institutions and could affect many corporate entities.
In response, the world's six largest accounting networks under the auspices of the Global Public Policy Committee are issuing a paper today to enhance awareness of the requirements of International Financial Reporting Standards (IFRS) in relation to the determination of fair values of financial assets and liabilities and related disclosures in the context of current market conditions. The paper does not amend or interpret IFRS - it sets out the requirements of existing IFRS literature only2. The paper is similar to that issued recently in the United States by the Center for Audit Quality with regard to US GAAP3.
The G7 Finance Ministers and Central Bank Governors have requested the Financial Stability Forum to review and report on certain aspects of the recent market turbulence, including valuation issues. As a result, the paper issued today by the accounting networks was shared in draft form with the Financial Stability Forum, some Board members and staff of the International Accounting Standards Board, the Standing Committee No.1 of the International Organisation of Securities Commissions (IOSCO) and the Accounting Task Force of the Basel Committee on Banking Supervision.
Commenting on the release of the paper, Dick Kilgust, chair of the firms' Global Public Policy Committee, said:
"It is important that the large firms have come together to work on these issues. The valuation issues are complex and it is the first time that IFRS has been applied extensively in difficult market conditions. While it is not our job to provide interpretation of the standards or valuation guidance, we believe that drawing attention to the key issues should promote compliance and consistency around the world".
Notes for Editors
1. The Global Public Policy Committee (GPPC) of the six largest international accounting networks comprises representatives of BDO International, Deloitte, Ernst & Young, Grant Thornton International, KPMG, andPricewaterhouseCoopers, and focuses on public policy issues for the profession. Copies of the paper issued today are available on the networks' global websites.
2. International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations are issued by the International Accounting Standards Board and may be obtained through the organisation's website:
www.iasb.org
3. The US Center for Audit Quality issued its white paper
'Measurements of Fair Value in Illiquid (or Less Liquid) Markets' in October 2007. Copies of that paper are available from the Center's website:
www.thecaq.org.
