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FASB, IASB tentatively define fair value as an exit price

FASB and the International Accounting Standards Board (IASB) tentatively defined fair value as an exit price during a joint meeting last week.

While FASB and the IASB decided to retain the term fair value and tentatively apply the definition, they also agreed to discuss where that definition should be used and the scope of a converged fair value measurement standard at a future meeting.

FASB and the IASB also provided tentative guidance for measuring fair value in markets that have become less active:

Pertains to when there has been a significant decline in the volume and level of activity for the asset or liability
Focuses on whether an observed transaction price is orderly, not on the level of activity in a market

The tentative agreement says that an entity should consider observable transaction prices unless there is evidence that the transaction is not orderly. If an entity does not have sufficient information to determine whether a transaction is orderly, it performs further analysis to measure fair value.

FASB and the IASB are now meeting monthly as the two forge ahead on the convergence of U.S. GAAP with IFRS (International Financial Reporting Standards). Fair value is among one of the more controversial stumbling blocks to converging the standards, along with revenue recognition, leases and consolidation.