Financial Intruments - The IASB's request for views on the FASB's proposals

When EFRAG discussed its comment letter in response to the IASB's request for views on the FASB proposals on accounting for financial instruments, EFRAG considered the need for an in-depth analysis of how so called 'illiquid instruments' should be measured. EFRAG agreed in its meeting in September 2010, when it finalised the comment letter to the FASB, that it would not deliberate on the issue before undertaking a more detailed analysis.

EFRAG staff analysed the concerns expressed by constituents that 'illiquid' financial instruments should be measured at fair value. EFRAG discussed the role that reliability should play in cases of significant valuation uncertainty, the role of an active market in the context of the classification of a financial instrument and the role of disclosure. EFRAG considered that while fair value measurement could generate significant valuation uncertainty when markets are stressed, cost-based measurements were not relevant for derivatives and equity instruments. EFRAG considered that in presence of significant valuation uncertainty, adding specific disclosures was a more promising approach than requiring measurement at cost or separate presentation of the changes in fair value in 'other comprehensive income'. However, such disclosures should focus on both level 2 and level 3 fair value measurements. EFRAG concluded that no subsequent steps needed to be taken on the issue.