Fair Value Measurement

1. Agenda-F-2 Fair Value Measurement Sep 29, 2010

2. Outline • Project Background • Working Group and Timeline • Summary of AOSSG Members’ and WG Members’ Views • Discussion and Conclusion

3. I. Project Background - History

4. Project Background - Objective • The Board’s objectives in the fair value measurement project are to: • establish a single source of guidance for all fair value measurements; • clarify the definition of fair value and related guidance; • enhance disclosures about fair value measurements; and • increase the convergence of IFRS and US GAAP

5. II. Working Group and Timeline 5 • The AOSSG FVM Working Group: • Lead country: China • Members: Hong Kong, Japan, Korea, Malaysia • Timeline: • 22 Aug 2010, circulate questionnaire on the project • 12 Sep 2010, WG members’ preliminary views • 29 Sep 2010, discussion among AOSSG members

6. III. Summary of AOSSG Members’ Views 6 • ED/2009/5: • AOSSG members generally support IASB’s effort to improve the fair value measurement standard. • Suggested revisions or clarification: • Principal market vs. most advantageous market • Highest and best use • Exit price vs. entry price • Market participants • Unit of account • Disclosure

7. III. Summary of AOSSG WG Members’ Views • Staff Draft of the forthcoming IFRS • AOSSG WG members generally agree with the current proposals. • A few suggestions: • The IASB should define the relationships between the standard, the Report of Expert Advisory Panel and the educational material (KASB). • The IASB should give application guidance on how to measure the financial instruments portfolio on a net basis while presenting the assets and liabilities separately on the financial statement (KASB, HKICPA). • The IASB need to further clarify the unit of account or reassess the unit of account guidance that currently exists in the IFRSs (CASC). 7

8. III. Summary of AOSSG WG Members’ Views • Staff Draft of the forthcoming IFRS • A few suggestions (con’d): • The IASB need to clarify the difference between discounts arising from the blockage factors and other premiums and discounts (CASC, MASB). • The IASB need to revisit the highest and best use notion, since it is not appropriate to broadly apply it to all types of non-financial assets (MASB). • There’s a strong demand among AOSSG WG members for application guidance on a couple of issues: • Quoted price provided by a third party • Disorderly transactions 8

9. III. Summary of AOSSG WG Members’ Views • Most representative of fair value within a bid-ask spread • Specific valuation problems: • Long term stock suspension • Unquoted equity investment • Non-performing assets held by asset management companies • Restricted equity instrument • Derivatives (credit risk adjustment) • Bearer biological asset • Plantation land (incremental value) • conversion features (options) embedded in a private company's convertible preference share 9

10. III. Summary of AOSSG Members’ Views 10 • ED/2010/7: • Most AOSSG members disagree with the proposed disclosure (except for ASBJ and ICAP) • Some AOSSG members think that the objective of making such disclosure is not clearly stated, or the proposed disclosure may not met the objective. • Almost all of the AOSSG members think that the proposed measurement uncertainty disclosure is neither operational nor appropriate. • Almost all of the AOSSG members believe that the cost that entities will bear to meet the disclosure requirements would significantly outweigh the benefit that users of financial reports would gain from the information disclosed. • Most AOSSG members believe that the proposed disclosure will not provide useful information, or can even be misleading.

11. III. Summary of AOSSG Members’ Views 11 • Alternative disclosure: • describing the nature or extent of the uncertainty and the justification for preferring the inputs • providing management estimates of the lower and upper bounds representing a specified (e.g. 95%) confidence interval of possible values around the reported fair value • disclosing the major sources of uncertainty, if any, about the inputs used that would change fair value significantly; and the effect of correlation between inputs whether observable or unobservable, where information about inputs alone would otherwise be misleading • Some AOSSG members suggest that if the Board proceeds with the proposal, the Board should provide either guidance on their application to non-financial assets, or exclude non-financial assets from the scope of such disclosure .

12. IV. Discussion and Conclusion • What’s your view on the fair value measurement project? • Do you agree with the current proposals in the staff draft of a forthcoming IFRS on fair value measurement issued on August 19, 2010? • Do you agree with the measurement uncertainty analysis requirement proposed in ED/2010/7. • Do you think that more guidance is needed to ensure consistent application of the fair value measurement? What practical difficulties do you encounter? 12

13. Thank you!