Resources (This includes links to the latest standards, drafts, PwC interpretations, tools and practice aids for this topic).
IFRS 13 provides a common framework for measuring fair value when required or permitted by another IFRS.
IFRS 13 defines fair value as 'The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.' [IFRS 13 para 9]. The key principle is that fair value is the exit price from the perspective of market participants who hold the asset or owe the liability at the measurement date. It is based on the perspective of market participants rather than the entity itself, so fair value is not affected by an entity’s intentions towards the asset, liability or equity item that is being fair valued.
A fair value measurement requires management to determine four things: the particular asset or liability that is the subject of the measurement (consistent with its unit of account); the highest and best use for a non-financial asset; the principal (or, in its absence, the most advantageous) market; and the valuation technique. [IFRS 13 para B2].
IFRS 13 addresses how to measure fair value but does not stipulate when fair value can or should be used.
Fair value measurement and related disclosures
Regulators have expressed interest in
entities’ fair value measurement and
related disclosures covered by IFRS 13.
Some key reminders are:
- valuation techniques must comply with
the IFRS requirements;
- the use of observable inputs shall be
maximised and the use of unobservable
- issuers should use quoted prices in an
active market without any adjustment
(i.e. a Level 1 input) where available.
- fair value of derivatives should incorporate counterparty and own credit risk.
Issuers should provide relevant
information to meet the standard’s
objective, including when the fair value is
determined by third parties;
Issuers should provide a description of:
- the valuation technique;
- the inputs used (e.g. quantitative info
for significant unobservable inputs) –
Level 2 and 3;
- any changes in the valuation
techniques and reasons;
- levels of FV hierarchy;
- the sensitivity to changes in
- whether current use differs from its
highest and best use.
Note the above list sets out disclosures
highlighted by the Regulators, for a
complete list of disclosure requirements
refer to IFRS 13.