5/11/2008: The fight over fair value

Excerpts from Gloves off on fair value
By Jeremy Woolfe

Signs of disharmony, verging on disarray, are emerging in the world of accountancy regulation over fair value reporting and its alleged potential to trigger a downward spiral in asset values.
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The IASB’s consistent position of upholding the gold standard of fair value, as covered mainly by IAS 39, was reflected at a recent meeting with the US Financial Accounting Standards Board and the British Corporate Reporting Users’ Forum.

Reflecting the views of professional investors, the Cruf members said they “prefer fair value”, but also expressed concern about the reliability of their valuation models. Additionally, they admitted “fair value might be pro-cyclic, but that this would not be the real issue”. One example of what was “real” was need for cash flow data.

Putting pressure on the regulators from the other side of the fence are the banks. The International Banking Federation notes in a press release “that a mixed measurement model [for reporting financial instruments] is essential for the faithful representation of an entity’s business model”. Other banking institutions, including the European Banking Federation, endorses the view that fair value should not “always be an exit price”.