Measuring the fair value of a liability issued with an inseparable third-party credit enhancement
The IASB and the FASB tentatively decided that the requirements for measuring the fair value of a liability issued with an inseparable third-party credit enhancement:
- apply only to guarantees purchased by the issuer of the liability; and
- do not apply to liabilities guaranteed by other entities within the consolidated or combined group.
When an entity is measuring the fair value of a liability issued with an inseparable third-party credit enhancement, the boards tentatively decided that the unit of account is the obligation without the credit enhancement, which means that the entity should measure the fair value of the liability using its own credit standing, not that of the third-party guarantor.
For the FASB, the above tentative decisions confirm principles that are already included in Topic 820 Fair Value Measurements and Disclosures, and will result only in clarifications of wording to be consistent with IFRSs. For the IASB, the tentative decisions are consistent with the proposals in the IASB's exposure draft Fair Value Measurement.
The IASB also tentatively decided that an entity would be required to disclose the existence of a third-party credit enhancement of a liability that it has issued, as is currently required by US GAAP.
Disclosures about fair value-based measures (such as fair value less costs to sell)
The boards tentatively decided that the disclosures that an entity is required to make about fair value measurements also apply to fair value-based measurements (eg fair value less costs to sell). These disclosures are currently required by US GAAP and are consistent with those proposed in the IASB's exposure draft, but Topic 820 and the IASB's forthcoming fair value measurement standard will be made more explicit.