Fair Value Accounting in IFRS Financial Statements
Fair value accounting in IFRS financial statements Considerable attention is currentiy being given to the use of fair vaiues and fair value accounting in financiai statements prepared under internationai
Financiai Reporting Standards. This month's coiumn ciarifies what is meant by fair value accounting and when iFRS require or allow its use.
It also identifies the circumstances in which IFRS requires the use of fair value in the application of the historical cost model.
In IFRS financial statements, fair values are used in the three circumstances:
• to measure some assets and liabilities at each balance sheet date;
• to measure some assets and liabilities on their initial recognition in the financial statements or on transition from national GAAP to IFRS; and
• to determine some asset impairments.
Only the first of these circumstances should be described as 'fair value accounting'. It is the only circumstance that requires annual measurement at fair value and the recognition of unrealised gains in the financial statements.
IFRS require measurement at fair value at each balance sheet date and the recognition of unrealised gains, in other words, fair value accounting only for:
U most equity investments;
• some investments in debt securities;
• other financial assets and financial liabilities that are heid for trading;
• the hedged item in a fair value hedge;
M defined benefit plan assets;
• some non-financial liabilities (provisions); and
• some biological assets.
In most, but not all, cases, changes in fair vaiue are included in profit or loss, in most of these cases, the requirement for fair vaiue measurement is a direct consequence of the adoption of IFRS. iFRS ailows, but does not require, measurement at fair value at each balance sheet date and the recognition of unrealised gains for:
• investment property;
• property, plant and equipment;
• intangible assets; and
• financial assets that