Posts Tagged ‘fair value accounting’

How prepared is your tax organization for the impending shift from US GAAP to IFRS reporting standards? The truth is, you might be closer than you think. Explore part one of the PWC paper, “Fair Value Accounting: Tax Considerations” that provides a historical outlook on financial reporting transparency measures already adopted by U.S. based corporations and how these tenants pave the way for a shift to IFRS. 

Fair Value Accounting: Tax Considerations - Background

Elements of fair value accounting have been used for decades in US GAAP. Although the growth of fair value accounting has been incremental, its use has accelerated in recent years as a means of enhancing financial statement quality, transparency, and relevance. An increasing variety of assets and liabilities are subject either to required or elective fair value accounting. This trend aligns with global accounting convergence, because the use of fair value measurement is even more prevalent in International Financial Reporting Standards (IFRS).

The recent turmoil in the capital and credit markets has heightened the focus on certain aspects of fair value accounting. On October 3, 2008, the US president signed into law H.R. 1424, The Emergency Economic Stabilization Act of 2008. Pursuant to section 133 of the Act, the Securities and Exchange Commission (SEC), in consultation with the Treasury and the Financial Accounting Standards Board (FASB), has 90 days to study and report to Congress on the application of FAS 157, Fair Value Measurements to financial institutions, including depository institutions. The issuance of FAS 157 was a watershed event, providing the first US GAAP framework for measuring fair value. On October 10, 2008 the FASB issued guidance clarifying how FAS 157 should be applied in valuations of securities in markets that are not active.

Fair value accounting is not limited to financial assets or financial businesses. It can apply to any business, and with respect to a wide variety of assets, liabilities and activities including:

• Derivatives and trading activities
• Investments in trading and available-for-sale securities
• Intangibles acquired in business combinations
• Asset retirement obligations
• Impairments of long-lived assets
• Exit and disposal activities
• Pensions and other post-retirement benefit plans
  Share-based compensation
• Guarantees and indemnifications

This paper highlights the significance of the movement toward fair value accounting to those responsible for company tax matters. It addresses the trend from the perspective of each of several diverse areas in which tax matters intersect with fair value measurement. The importance of coordination around these topics on a fully integrated basis, across company management functions, is underscored.