When you hear the word measurement, what comes to mind? For most of us, measurement implies an exact science. However, there are situations, especially in the financial sector and broader business community, where measurement is not so easily defined or performed. And one of those situations is fair value measurement.
What makes fair value measurement such a challenge is that, unlike real property and other tangible assets (which can be objectively measured and valued), there’s tremendous subjectivity and diversity within the available and applicable valuation resources, guidance and methodologies. This diversity often manifests itself in inconsistent application and documentation which, in turn, can result in valuation deficiencies. The reaction to these valuation deficiencies can be seen in heightened regulatory scrutiny and diminished investor confidence.
As regulators and investors continue to push for greater transparency in financial markets, both domestically and internationally, financial statement disclosures that rely on professional judgment generally – and fair value measurement specifically – will continue to receive scrutiny.