Insights into IFRS 13 - Fair value measurement

IFRS 13 has been effective since 1 January 2013 and was subject to a Post Implementation Review (PIR) in 2017. As a result of this PIR, the International Accounting Standards Board (IASB) concluded that IFRS 13 is working as intended.

Specifically, • the information required by IFRS 13 is useful to users of financial statements some areas of IFRS 13 present implementation challenges, mainly in areas requiring judgement. However, evidence suggests that practice is developing to resolve these challenges, and • no unexpected costs have arisen from application of IFRS 13.

The IASB therefore concluded no changes were required to IFRS 13.

This Insights into IFRS 13 article not only summarises the Standard, it also provides detailed commentary on various aspects of applying this Standard from the perspective of a preparer working alongside a valuation expert.

“IFRS 13 ‘Fair Value Measurement’ explains how to measure fair value by providing clear definitions

and introducing a single set of requirements for almost all fair value measurements.”

Scope of the Standard

IFRS 13 applies when another IFRS requires or permits fair value measurements – either in the primary statements themselves or in the footnotes (including ‘fair value-based’ measurements). In other words, it explains how to measure fair value rather than when to.

In addition to items measured at fair value in the primary statements, IFRS 13 also applies to items that are fair valued for disclosure purposes only. Examples include the fair value disclosure requirements in IFRS 7 ‘Financial Instruments: Disclosures’, and those in IAS 40 ‘Investment Property’ when the cost model is applied.

IFRS 13 does not however apply to:

• transactions within the scope of IFRS 2 or IFRS 16, or
• measurements that have some similarity to fair value but are not fair value (e.g. net realisable value in IAS 2 ‘Inventories’ and value in use in IAS 36 ‘Impairment of Assets’).

“In addition to items measured at fair value in the primary statements, IFRS 13 also applies to items that are fair valued for disclosure purposes only.”

Definition of Fair Value

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”.

A number of concepts are embodied in the definition. Firstly, it clarifies that fair value is an ‘exit’ price – for example, it refers to the transfer of a liability rather than settlement. Secondly, it assumes an orderly sale or transfer (i.e. not a forced transaction or a distressed sale). Thirdly, there is an explicit reference to ‘market participants’, emphasising that fair value is a market-based concept. Finally, IFRS 13 clarifies that fair value is a current price at the measurement date (e.g. the acquisition date in a business combination, or the period end for a recurring fair value measurement).