FRC publish review of fair value measurement

June 13, 2023

The Financial Reporting Council (FRC) has today published its thematic review of fair value measurement.

Many IFRSs require or permit fair value measurements. The challenging economic environment and the risks posed by climate change may increase the degree of estimation uncertainty and management judgement in this area. Consequently, clear and transparent disclosures of fair value measurements are likely to become increasingly important.

The review highlights:

1. Fair value measurements should use market participants’ rather than the company’s own assumptions. Whilst the transaction price usually reflects fair value, there may be circumstances where this is not the case, for example, in transactions with related parties. Companies should ensure that appropriate adjustments are made to the transaction price to ensure it reflects fair value in such cases.
2. There is scope for improvement of the disclosures provided by many companies. The transparency of reporting about the valuation approach, underlying assumptions, management judgement and estimation uncertainty is key.
3. Companies should consider using specialist third party advice when valuing a material item and where there is no internal expertise.

Although the review focuses on disclosure matters, it includes two case studies to highlight measurement issues the FRC found in its routine monitoring of corporate reporting.

To encourage improvement in the general quality of company disclosures, the review also includes examples of good practice, each of which demonstrates a particular characteristic of a better disclosure.

[Financial Reporting Council]