Proceedings

As we have noticed, the fair value is mainly based on an exit value (price received to
sell an asset). From the illustrative examples and the guidance given by ED it results
that even when the company does not intend to sell the asset or an active market is not
available, the estimated price is still to be used.
The first question relates to the definition of fair value and related guidance and is
about how do respondents consider that definition, appropriate or not? Arguments
were requested regardless of the answer. Also, in case the respondent disagreed, a
better definition in his view was requested together with the reason in its favour.
For the first question, approximately 66% from the respondents answered that they do
not agree with the definition proposed by IFRS for the fair value, and they have
considered that the value defined by the ED is not feasible for every reporting entities,
nor that it may cover all the questions and particular situation that may appear in the
real life. The main objection for the fair value’s definition is that it should not be
based on an exit price (or an exit value), regardless of the situation in which it might
appear, but also on an entry price or on another value, depending on the particular
situation. The vast majority of those that disagreed underline the fact that especially
for liabilities a notion such as “settlement” is not appropriate, but it rather should be
considered in exchange a “transfer: of the liability and more than that, as an active
market for liabilities is, if not impossible, than it is very hard to find, an exit value is
not at all appropriate for them.
An other significant part of respondents emphasized that the definition given by ED to
the fair value is not consistent with the examples also presented by IFRS in a separate
document and they made reference to more than one example that relied on the “in
use value” although the fair value is to be based on the exit price.
On the other hand an insignificant number of letters strongly recommended IASB to
give up the definition based on (restricted on) the exit price and to allow entities to
determine the fair value based on the intention the company has with regard to that
asset (to sell or to use the asset) or based on the “business model” of the company
(meaning that if the company doesn’t have any intention to sell the asset but it rather
intends to use it, the fair value should be computed completely based on the in use
value, and not on an selling price, as long as this price it is not relevant for the entity
with regard to that specific asset).
Interesting and to be expected was the reaction of evaluators and actuaries: they have
criticized that there are to many definitions for the fair value, basically the same (at
least supposed to lead to the same result), but which may lead to misunderstandings.
They recommended IASB to use the same definition given in their own standards.
The transaction
Question 3
The exposure draft proposes that a fair value measurement assumes that the asset or
liability is exchanged in an orderly transaction between market participants to sell the
asset or transfer the liability at the measurement date (paragraphs 8–12 of the draft
IFRS). An orderly transaction implies exposure to the market for a period before the
measurement date, it is not a forced transaction and takes place in the most
advantageous market to which the entity has access.
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