Exposure Draft on Fair Value Measurement

Observations on the Fair Value Measurement Exposure Draft is detailed under :-

a/ Refer Appendix A - definition of " most advantageous market" - The fair value measurement is done to benchmark the value of the existing asset / liability of the entity. The intent of the measurement is not to ascertain exit price / realisation price of the asset / liability which are an integral part of going concern and the entity will continue to derive economic benefit from the same. In such context, the consideration of transaction cost and transport cost will destort the true spirit of the value measurement since such cost operate under various market conditions. In the absence of the definition of transaction cost, the value measurement will further get distorted since the element of subjectivity will prevail.

Further, the reason stated for inclusion of the term tranportation cost [ as explianed by Mr K Prabhakar - Board member is ISB on 8/09/09 during deliberation ] is to neutralise the locational disparities between the operating markets and to bring the value more closer to realistic terms. In view of such consideration, then the other costs like storage, handling cost etc. should also be considered. However, there is no mention of such other costs in the exposure draft.

Hence, it is recommended that the operating price in the advantageous market unadjusted for any other cost should be a better reference for fair value measurement. The most relevent reference in this context would be quoted [ unadjusted] price - as mentioned in para 45 of the exposure draft for level 1 input for fair value measurement purpose.

b/ Reference para 53 - 54 of the exposure draft on Level 3 input, read alongwith disclosure requirements as per para 57, the value measurement for assets/liabities will be done basis unobservable input. In absence of any any specific guidline, the entity valuation will get influenced by management assumption and interpretaion. Thus the scope of subjectivity will be very high in the value measurement of assets/ liabilities.
Further, the disclosure requirements as specified in the draft standard will lead to the exposure of entity specific confidential information to competitors.