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Monday 26 August 2019

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Fair Value Measurement

Expert Advisory Panel


 Expert Advisory Panel

The following documents are now available:


The  panel was formed in May 2008 in response to recommendations made by the Financial Stability Forum to assist the IASB in:

  • reviewing best practices in the area of valuation techniques, and
  • formulating any necessary additional guidance on valuation methods for financial instruments and related disclosures when markets are no longer active.

The discussions of the panel members have provided the Board insight into whether there is a need for additional guidance in this area.

The discussions of the panel will provide input for the IASB’s work on  financial instrumentsand fair value measurement. The remit of the panel is how to measure the fair value of financial instruments when markets are no longer active. The panel did not discuss whether fair value is an appropriate measurement basis for a particular financial instrument or class of financial instruments.

The IASB is addressing this in its work on  financial instrumentsand has published a discussion paper Reducing Complexity in Reporting Financial Instruments, inviting respondents to comment by 19 September 2008.


The expert advisory panel comprises experts from preparers and users of financial statements, as well as regulators and auditors.

Participants were selected based on their practical experience with the valuation of financial instruments in the current market environment.

Representatives from the following organisations participated in the panel:

  • A. C. Sondhi & Associates, LLC
  • AIG (American International Group)
  • Basel Committee on Banking Supervision
  • BNP Paribas
  • Capital International Research Inc.
  • Citigroup
  • Deloitte
  • Deutsche Bank
  • Ernst & Young
  • Financial Stability Forum
  • Fitch Ratings
  • Goldman Sachs
  • HSBC
  • International Association of Insurance Supervisors
  • International Organization of Securities Commissions (IOSCO)
  • Professor Ravi Jagannathan, Northwestern University Kellogg School of Management
  • KPMG
  • Mizuho Financial Group, Inc.
  • Pioneer Investments
  • PricewaterhouseCoopers
  • Swiss Re
  • UBS
  • Financial Accounting Standards Board (staff observer)

Meeting summaries

The panel meetings suggested that the requirements and guidance in IAS 39 with regard to fair value measurement generally are clear, and that there is much consistency in the approach, or thought process, used to arrive at a fair value measure. However, some, especially smaller financial institutions and corporate entities, may need education on possible approaches .

10 October 2008 meeting

On 10 October 2008 the panel met to discuss the feedback received on the draft document[PDF], which was posted on this Website on 16 September 2008. The draft documentsummarises the discussions of the panel and provides useful information and educational guidance for measuring and disclosing fair values.


The panel discussed the 37 letters received on the draft document. Overall, the feedback received was supportive of the publication of the document. Respondents found it to be helpful and educational.


A final document will be posted on the IASB Website based on the feedback received on the draft and on discussions about that feedback at the 10 October meeting.

19 August 2008 meeting

On 19 August 2008 the panel met to discuss a draft document summarising the disclosure issues raised at previous meetings. 

7 August 2008 meeting

On 7 August 2008 the panel met to discuss disclosures about the measurement of financial instruments in markets that are no longer active. The panel discussed the following issues about disclosures:

  • aggregation and granularity of disclosures;
  • disclosure of a fair value hierarchy;
  • disclosure of valuation techniques;
  • disclosure of unobservable inputs used in valuation techniques, including sensitivity analysis, effect on profit or loss and sources of information; and
  • disclosures of other information, such as movements in own credit and the control environment for fair value measurement.
31 July 2008 meeting

On 31 July 2008 the panel met to discuss a draft document that contains:

  • a summary of the issues encountered in the credit crisis;
  • IAS 39’s requirements and guidance on those issues; and
  • a summary of how the panellists have dealt with the issues in practice, which focuses on the processes and approaches used when measuring the fair value of financial instruments when there is no longer an active market.

The comments obtained were incorporated into the draft document [PDF] .

17 July 2008 meeting

On 17 July 2008 the sub-group of the panel met again to discuss specific examples to illustrate the measurement issues identified at the 13th June meeting and discussed at the 7 July meeting. Nine examples were presented covering the following issues:

  • measuring fair value when there are no longer observable market prices
  • using transaction prices when the number of actual transactions has decreased
  • using data from pricing services, brokers or other sources
  • selecting inputs to models and adjusting those inputs
  • dealing with forced transactions (forced liquidation or distressed sales)
  • measuring changes in non-performance risk (own credit)

The examples related to the following instruments and structures:

  • commercial paper and auction rate securities
  • asset backed securities
  • loans in syndication
  • real estate loans
  • structured derivatives

The panel members discussed the approaches to these issues and transactions that have been developed over the past several months. These examples formed the basis of the draft document  [PDF] discussed at the full panel meeting on 31 July 2008.

7 July 2008 meeting

On 7 July 2008 a sub-group of the panel met to discuss in greater detail the measurement of financial instruments in markets that are no longer active.

The sub-group comprised the preparers and auditors on the panel. The objective of the meeting was to review the practical issues encountered, as identified in the 13th June meeting, and discuss the resolutions that have been found in practice over the past several months.

13 June 2008 meeting

The expert advisory panel met for the first time on 13th June 2008 in Londonto identify specific valuation and disclosure issues encountered in practice in the current market environment.

The issues relating to measurement included:

  • Selection of a valuation technique : The panel discussed how to select an appropriate valuation technique, and when that valuation technique might or should be changed.
  • Calibration of valuation model : The panel discussed when and how a valuation model should be calibrated to actual transactions when applying a particular valuation technique.
  • Use of third-party price quotes : The panel discussed the use of, and reliance upon, price quotes by third-parties (for example, brokers or pricing services) when transactions have occurred and when quotes were indicative and no transactions were occurring, and what to do when those indicative quotes differ from the value derived from a model.
  • Adjustments to valuation models : The panel discussed the types of adjustments that should be made to the model to reflect the value of the instrument being valued, and how such adjustments might be determined. For example, the panel discussed whether and how adjustments to reflect liquidity should be made.
  • Meaning of ‘observable’ and ‘significant’ inputs : The panel discussed what ‘observable’ and ‘significant’ meant in the context of inputs to a valuation model. This is important to determine the level in the fair value hierarchy (Level 1, Level 2 or Level 3) of the fair value hierarchy in FASB Statement of Financial Accounting Standards No. 157 Fair Value Measurements (SFAS 157).
  • Distinguishing between active and inactive markets : The panel discussed how to distinguish between an active market and an inactive market, and the importance of being able to determine when fair value might be based on something other than an observed transaction price.
  • Forced transactions (forced liquidations and distressed sales) : The panel discussed whether observed market prices could ever clearly identify forced or distressed sales and, if so, the implications of using such prices.
  • Measurement of changes in own credit : The panel discussed how to measure changes in own credit

The issues relating to fair value disclosures included:

  • Disclosures using the fair value hierarchy : The panel noted that banks outside the US have begun using the fair value hierarchy terminology in SFAS 157, that is ‘Level 1,’ ‘Level 2’ and ‘Level 3’, when discussing disclosures and inputs to valuation techniques. The panel discussed whether any relationships between instruments in different levels of the hierarchy should be disclosed.
  • Disclosures of valuation techniques, inputs, sensitivities and ranges : The panel discussed whether disclosures might be improved if the material data inputs used, and the valuation sensitivities of those inputs, were disclosed. The panel also discussed whether sensitivities would be more meaningful if they are presented in the aggregate (eg under an ‘adverse outcome’ scenario) rather than at an individual input level (eg changing one input at a time, holding all others constant).