IFRS 13 Fair Value Measurement

International Financial Reporting Standard 13

Overview of IFRS 13

  • Issued: issued in 2011, followed by amendments
  • Effective date: 1 January 2013
  • What it does:
    • IFRS 13 represents the framework for fair value measurement required throughout other IFRS standards (for example, IFRS 9).
    • 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 ("exit price").
    • In order to increase consistency of fair value measurement, IFRS 13 sets fair value hierarchy which classifies inputs used in valuation techniques into 3 levels:
      1. Quoted prices in active markets for identical assets or liabilities that an entity can access at the measurement date.
      2. Other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (i.e. quoted prices of similar assets).
      3. Unobservable inputs for the asset or liability.
    • IFRS 13 then outlines a fair value measurement approach.
    • Further guidance on measurement is given, including:
      • Characteristics of an asset or a liability being measured,
      • The highest and best use of non-financial assets,
      • Market transactions and many more.
    • With reference to valuation, IFRS 13 discusses 3 valuation techniques:
      1. Market approach: it utilizes the information from market transactions.
      2. Cost approach: it involves current replacement cost.
      3. Income approach based on future cash flows, income or expenses discounted to present value.
    • It sets broad range of disclosures related to fair value measurement, including identification of classes, specific disclosures for each class of assets and liabilities measured at fair value, and many more, both in a descriptive and quantitative format.

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