In another strike toward a single global accounting rule book, the Financial Accounting Standards Board has published a proposed Accounting Standards Update to tweak requirements in U.S. Generally Accepted Accounting Principles for how to measure fair value and disclose information about those measurements.

The International Accounting Standards Board meanwhile published a revised proposal intended to redirect fair value measurement and disclosure under International Financial Reporting Standards, with the two proposals intended to achieve common approaches under both standards. The IASB first exposed its proposal for public comment in 2009, then revised and republished it with the FASB proposal.

The FASB overhauled fair value measurement in 2007 with Financial Accounting Standard No. 157: Fair Value Measurement, now codified in the Accounting Standards Codification under Topic 820. That rule introduced the notion of measuring fair value based solely on exit prices that would be reached in arm’s length transactions with hypothetical market participants. It also introduced the idea of measuring value based on three different levels of evidence – observable market prices, internally developed models and assumptions, and a mixture of the two – with observable market prices being most preferable.

The new proposal retains those basic principles, said David Larsen, managing director at valuation firm Duff & Phelps and a member of FASB’s Valuation Resource Group. The IASB proposal is consistent with those principles as well, he said, despite IASB reservations early on about the exclusive reliance on using exit prices for measuring fair value.

“FASB does not expect that the changes they are making will have substantive impact on fair value measurement,” said Larsen. “Until we read all 275 pages I’m not sure I can confirm that, but on the surface it looks like that may indeed be the case.”

One of the most significant changes that would arise under the proposal, said Larsen, is an increase in “sensitivity disclosure,” or disclosure regarding where subtle changes in assumptions might produce meaningful differences in certain fair value measurements. The proposal also would allow an entity to consider offsetting risks when measuring instruments that are managed together and report a net measurement rather than individual measurements – such as derivatives in a hedge, said Larsen.

FASB is accepting comments on its proposal through Sept. 7.

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