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The Financial Reporting Council (FRC) has announced that fair value measurements should use market participants’ rather than the company’s own assumptions, following its review into fair value assessment.
It stated that 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.
The FRC also concluded that there was “scope for improvement” of the disclosures provided by many companies.
It believes that companies should ensure that appropriate adjustments are made to the transaction price to ensure it reflects fair value in such cases.
The review also stated that companies should consider using specialist third party advice when valuing a material item and where there is no internal expertise.
Fair value measurement assigns a fair price to an asset based on the market value of it.
