In its meeting in London last week, the International Accounting Standards Board addressed a slate of current topics, including its ongoing Conceptual Framework and updates to IFRS 13 Fair Value Measurement. In connection with the latter, the board tentatively decided that—based on two letters of inquiry—the unit of account for investments in subsidiaries, joint ventures, and associates is “the investment as a whole” rather than “the individual financial instruments that make up the investment,” according to the IASB Update (March 2013) which summarizes the entire agenda. The board made the following preliminary findings for valuing investment ventures:
- The fair value measurement of an investment composed of quoted financial instruments should be the product of the quoted price of the financial instrument (P) multiplied by the quantity (Q) of instruments held (P × Q), in large part because the quoted prices in an active market “provide the most reliable evidence of fair value.”
- Similarly, the fair value measurement, for impairment testing purposes, of cash-generating units (CGUs) that correspond to a quoted entity should be the product of their quoted price (P) multiplied by the quantity (Q) of instruments held (P × Q).
As a next step, the board will prepare an exposure draft of IFRS 13 Fair Value Measurement, at which time a minority of dissenting members will present any alternative views.
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