The International Accounting Standards Board (IASB) and the International Valuation Standard Council (IVSC) have signed an agreement to align their work on the measurement of fair value for financial reporting.
Both organisations said they share an interest in this field, as both issue standards and guidance on fair value, particularly the IASB, which released IFRS 13 Fair Value Measurement establishing the principles to measure fair value.
As opposed to historical cost accounting, which takes into account the monetary value of assets and liabilities when first acquired, fair value accounting measures them as estimates of their current value.
The debate on fair value accounting re-emerged in the aftermath of the financial crisis, when some authors and commentators regarded this method as one of the reasons contributing to the credit crunch of 2008.
Under the terms of the agreement, the IASB and the IVSC committed to mutually provide input on the amendment of standards and inform each other if they observe diversity of practices when measuring fair value in financial reports.
The agreement will be reviewed in two years’ time and does not involve the endorsement of the counterpart’s work as "each organisation takes sole responsibility for the drafting and dissemination of its standards," the protocol for co-operation stated.
IVSC chairman Sir David Tweedie said the elimination of any significant differences in the way fair value is understood and reported is required to strengthen the financial system.