Question

The uncertainty of prices on various markets has increased as a result of the spread of COVID-19 pandemic. It has been argued that COVID-19 has impacted the measurement of fair value particularly exit price accounting either directly or indirectly. In your opinion, what are the possible solutions to fair value measurement that are resulting from volatile markets during COVID-19 situation ?

Answer 1

The fair value measurement refers to a market-based measurement; and a period of financial disruptions due to Covid-19 it will cause serious challenges for banks to ensure that their measurements on fair value should be accurate in reflecting the current market conditions. The price volatility in the markets would impact the fair values especially in two main approaches, either direct (which means that the fair value would be computed based on prices in market such as shares or debt securities traded on the active market), or indirect approach (which means that valuation technique is determined with the inputs derived from volatile markets). To deal with this situation the fair value measurements, especially for the investment property and financial instruments should be reviewed to ensure the values depicts the conditions at the balance sheet date. It would consider to determine the measurement based on unobservable inputs that depicts the participants in market consider the effect of pandemic in their expectations of the cash flows in future related to the liability or asset at the reporting date. Moreover businesses can take an extension of time limit given by regulators in regard to financial results, GST return, corporate governance report submission, etc.