Question

Why is fair value critical to U.S. GAAP and IFRS and how do they differ in the application of fair value?

Answer 1

Answer:-

Fair value measurement is an area of IFRS and US GAAP that is substantially converged. But while the two standards seek to minimize the differences between IFRS and US GAAP, some differences arise due to the intersection of this guidance with other standards. Fair value measurement is not a static discipline; new valuation methodologies are continually being created and refined. As a result, preparers of financial statements need to monitor developments in valuation techniques to ensure that their valuation models appropriately reflect the types of inputs that market participants would consider. But monitoring alone isn’t sufficient. Regulators frequently question preparers about many areas of fair value measurement, including the appropriateness of the assumptions used and disclosures.

Although the two systems share definitions and processes, they can differ in how these rules are applied to various assets and liabilities. Some assets are eligible for fair value accounting under GAAP but not under IFRS, and vice versa. Each system also has different requirements for measuring the fair value of investments in a business whose purpose is to make investments on behalf of clients for capital appreciation, investment income or both. Small-business owners must be aware of the rules regarding which assets apply under which set of standards