IFRS 13

Fair Value Measurement

OVERVIEW OF IFRS 13
IFRS 13 was issued by IASB
on My 2011.
The standard was the result
of a convergence project
between IASB and US
GAAP.
The standard first applied
to annual periods beginning
on or after January 1, 2013.
SCOPE OF IFRS 13
IFRS 13 applies whenever
another IFRS permits or
requires the measurement or
disclosure of fair value or a
measure that is based on fair
value (such as fair value less
cost to sell) with the
following exceptions:
1. Share-based payments
2. Lease transactions
3. Measurement similar
to fair value
4. Exemption from the
disclosures of IFRS 13.
OBJECTIVE OF IFRS 13
1. Define fair value.
2. Set out a single IFRS
framework for fair value
3. Require disclosure about
fair value measurement
FAIR VALUE MEASUREMENT
Previous definition of fair value:

Fair value definition

The amount for which an asset could be

exchanged or a liability settled between
knowledgeable, willing parties in an
arms length transaction
FAIR VALUE MEASUREMENT
New definition of fair value:

New fair value definition

the price that would be received to sell

an asset or paid to transfer liability in an
orderly transaction between market
participants at the measurement date.
OVERVIEW OF FAIR VALUE MEASUREMENT APPROACH
Particular asset or liability that is subject of the measurement
For a non-financial asset, the valuation premise that is
appropriate for the measurement.
the principal (or most advantageous market) for the asset or
liability.
valuation techniques
GUIDANCE ON MEASUREMENT
GUIDANCE ON FAIR VALUE MEASUREMENT
Use assumption that market participants use when pricing
asset/liability.
buyers and sellers in the principal or most
Market participants advantageous market for that asset or liability

Characteristics of Market Participants

Independent

Knowledgeable

Willing

Able
GUIDANCE ON FAIR VALUE MEASUREMENT
t

Orderly transactions

Adequate market exposure Market participants are not forced.

GUIDANCE ON FAIR VALUE MEASUREMENT

Principal or most
advantageous market

When there is not principal market

Most advantageous
market

Maximize the amount Minimize the amount to

to sell the asset transfer a liability
TRANSACTION AND TRANSPORT COSTS

Description Included in fair value?

The costs to sell the No (Although they are

asset or transfer the considered in the assessment of
liability that are which market is most
Transaction costs directly attributable to advantageous)They are a
the disposal of the characteristic of the
asset or the transfer of transaction, not of the
the liability asset or liability
The cost that would be
incurred to transport Yes Transport changes a
Transport costs an asset from its characteristic of the asset
current location to its (its location)
exit market
GUIDANCE ON FAIR VALUE MEASUREMENT
Application to non-financial assets

highest and best use

physically possible legally permissible financially feasible

GUIDANCE ON FAIR VALUE MEASUREMENT

Application to liabilities/ own equity instruments

Fair value = observable

Yes
Is there an observable market price of
market price to transfer instrument
the instrument?

Yes Fair Value = fair value of

No the corresponding asset
Does somebody hold the
corresponding asset? No Fair value = another
valuation technique
FAIR VALUE MEASUREMENT

Valuation Techniques

Market Approach Cost Approach Income Approach

Market multiples Non-financial assets Present value techniques

Matrix pricing
FAIR VALUE MEASUREMENT

Fair Value Hierarchy

Level 1 Level 2 Level 3

unadjusted quoted prices for observable inputs other unobservable inputs

identical assets/liabilities in than quoted prices, e.g.
financial forecasts
an active market quoted prices of similar
items historical volatility
FAIR VALUE MEASUREMENT

Fair Value Disclosures

Understand valuation techniques = inputs

OBJECTIVES
Understand the effect of fair value measurement on P/L or
OCI (Level 3)

Disclosure requirements are not required for;

Plan assets measured at fair value in accordance with IAS
19
Retirement benefit plan investments meausured at fair
value in accordance with IAS 26
Assets for which recovervale amount is fair value less
costs of disposal in accordance with IAS 36