Experts reject fair value only methods

A majority of investors and analysts reject a simply fair value only model
for valuing financial instruments, according to a survey by PwC.

The research found that most analysts and investors across Europe the US and
the Asia Pacific prefer a mixed measurement method where instruments held to
maturity for their income are valued at amortised cost and only those held for
sale or trading are valued using fair value.

The poll questioned 62 experts with specialisms mostly in banking and
insurance. Around one in ten were generalists. Around three quarters worked with
equities while the rest were focused on fixed income.

PwC said there was also a consistent desire among those polled for improved
disclosure of fair value information.

Those that prefer a mixed measurement method say it better reflect the
reasons for holding on to an instrument.

Pauline Wallace, head of public policy at PwC said the results provided a
useful barometer of thinking on the issue of fair value.

“Clearly there is a breadth of views held by the investment community but it
is striking the extent to which there is a consistency rather than divergence in
opinions across both geography and sectors.

Currently, the International Accounting Standards Board is supporting a mixed
measurement model while standard setters in the US, FASB, have championed a fair
value only method.

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