Investment Management Industry Update: Section 3855 — Fair valuation of securities traded in foreign markets

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Many fund managers believe there is a strong correlation between the North American and foreign markets, particularly for foreign securities that are offered in American Deposit Receipt (ADR) or a similar form in North America. For example, a security may close at $10 in the local market, then open the next day in that same local market at $9 thanks to events unfolding in the North American markets after the closure of the local Asian one.

The question these fund managers are asking is whether the practice of applying fair valuation techniques in the above circumstance complies with the recommendations of the CICA Handbook Section 3855 "Financial Instruments — Recognition and Measurement." Also known as Section 3855, this handbook provides guidance on valuation methods when preparing financial statements.

Read this article to learn PwC's approach when applying robust and consistent valuation techniques to securities traded in foreign markets.