Fair value measurements of control premiums

25 Jun 2015

As the overview of the current state of research within this paper shows, the debate around fair value measurements is far from over. This paper analyses fair value measurement requirements in a controversial scenario, namely when a control premium exists. The analyses of the paper show that, while measurement rules around control premiums could have a material impact on fair value measurements and the financial statements as a whole, significant fair value measurement issues remain unresolved. The conclusion is that fair value measurements should include or exclude control premiums consistently. It is argued that including control premiums for all fair value measurements is the most faithful representation of the underlying economic phenomenon. This paper contributes to the fair value measurement debate by comparing the merits of alternative fair value measurements for control premiums and highlights an area where researchers, investors and other users should exercise caution when evaluating financial statements.