Overview

IFRS 13
Fair Value Measurement
IFRS 13 Fair Value Measurement applies to IFRSs that require or permit fair value
measurements or disclosures and provides a single IFRS framework for measuring fair
value and requires disclosures about fair value measurement. The Standard defines fair
value on the basis of an 'exit price' notion and uses a 'fair value hierarchy', which results
in a market-based, rather than entity-specific, measurement.
IFRS 13:
 defines fair value
 sets out in a single IFRS a framework for measuring fair value
 requires disclosures about fair value measurements.
IFRS 13 applies when another IFRS requires or permits fair value measurements or
disclosures about fair value measurements (and measurements, such as fair value less
costs to sell, based on fair value or disclosures about those measurements), except
for:
 share-based payment transactions within the scope of IFRS 2 Share-based
Payment
 leasing transactions within the scope of IAS 17 Leases
 measurements that have some similarities to fair value but that are not fair value,
such as net realisable value in IAS 2 Inventories or value in use in IAS 36
Impairment of Assets.
Key definitions
Fair value
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
Active market
A market in which transactions for the asset or liability take place with sufficient
frequency and volume to provide pricing information on an ongoing basis
Exit price
The price that would be received to sell an asset or paid to transfer a liability
Highest and best use
The use of a non-financial asset by market participants that would maximise the value
of the asset or the group of assets and liabilities (e.g. a business) within which the asset
would be used
Most advantageous market
The market that maximises the amount that would be received to sell the asset or
minimises the amount that would be paid to transfer the liability, after taking into
account transaction costs and transport costs
Principal market
The market with the greatest volume and level of activity for the asset or liability
Fair value hierarchy
IFRS 13 seeks to increase consistency and comparability in fair value measurements
and related disclosures through a 'fair value hierarchy'. The hierarchy categorises the
inputs used in valuation techniques into three levels. The hierarchy gives the highest
priority to (unadjusted) quoted prices in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs.
If the inputs used to measure fair value are categorised into different levels of the fair
value hierarchy, the fair value measurement is categorised in its entirety in the level of
the lowest level input that is significant to the entire measurement (based on the
application of judgement).
Level 1 inputs
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that
the entity can access at the measurement date.
A quoted market price in an active market provides the most reliable evidence of fair
value and is used without adjustment to measure fair value whenever available, with
limited exceptions.
If an entity holds a position in a single asset or liability and the asset or liability is traded
in an active market, the fair value of the asset or liability is measured within Level 1 as
the product of the quoted price for the individual asset or liability and the quantity held
by the entity, even if the market's normal daily trading volume is not sufficient to absorb
the quantity held and placing orders to sell the position in a single transaction might
affect the quoted price.
Level 2 inputs
Level 2 inputs are inputs other than quoted market prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly.
Level 2 inputs include:
 quoted prices for similar assets or liabilities in active markets
 quoted prices for identical or similar assets or liabilities in markets that are not
active
 inputs other than quoted prices that are observable for the asset or liability, for
example
o interest rates and yield curves observable at commonly quoted intervals
o implied volatilities
o credit spreads
 inputs that are derived principally from or corroborated by observable market
data by correlation or other means ('market-corroborated inputs').
Level 3 inputs
Level 3 inputs inputs are unobservable inputs for the asset or liability. [IFRS 13:86]
Unobservable inputs are used to measure fair value to the extent that relevant
observable inputs are not available, thereby allowing for situations in which there is little,
if any, market activity for the asset or liability at the measurement date. An entity
develops unobservable inputs using the best information available in the circumstances,
which might include the entity's own data, taking into account all information about
market participant assumptions that is reasonably available. [IFRS 13:87-89]
Measurement of fair value
The objective of a fair value measurement is to estimate the price at which an orderly
transaction to sell the asset or to transfer the liability would take place between market
participants at the measurement date under current market conditions. A fair value
measurement requires an entity to determine all of the following:
 the particular asset or liability that is the subject of the measurement (consistently
with its unit of account)
 for a non-financial asset, the valuation premise that is appropriate for the
measurement (consistently with its highest and best use)
 the principal (or most advantageous) market for the asset or liability
 the valuation technique(s) appropriate for the measurement, considering the
availability of data with which to develop inputs that represent the assumptions
that market participants would use when pricing the asset or liability and the level
of the fair value hierarchy within which the inputs are categorised.
Guidance on measurement
IFRS 13 provides the guidance on the measurement of fair value, including the
following:
 An entity takes into account the characteristics of the asset or liability being
measured that a market participant would take into account when pricing the
asset or liability at measurement date (e.g. the condition and location of the asset
and any restrictions on the sale and use of the asset)
 Fair value measurement assumes an orderly transaction between market
participants at the measurement date under current market conditions
 Fair value measurement assumes a transaction taking place in the principal
market for the asset or liability, or in the absence of a principal market, the most
advantageous market for the asset or liability
 A fair value measurement of a non-financial asset takes into account its highest
and best use
 A fair value measurement of a financial or non-financial liability or an entity's own
equity instruments assumes it is transferred to a market participant at the
measurement date, without settlement, extinguishment, or cancellation at the
measurement date
 The fair value of a liability reflects non-performance risk (the risk the entity will
not fulfil an obligation), including an entity's own credit risk and assuming the
same non-performance risk before and after the transfer of the liability
 An optional exception applies for certain financial assets and financial liabilities
with offsetting positions in market risks or counterparty credit risk, provided
conditions are met (additional disclosure is required).
Valuation techniques
An entity uses valuation techniques appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the use of relevant
observable inputs and minimising the use of unobservable inputs.
The objective of using a valuation technique is to estimate the price at which an orderly
transaction to sell the asset or to transfer the liability would take place between market
participants and the measurement date under current market conditions. Three widely
used valuation techniques are:
 market approach – uses prices and other relevant information generated by
market transactions involving identical or comparable (similar) assets, liabilities,
or a group of assets and liabilities (e.g. a business)
 cost approach – reflects the amount that would be required currently to replace
the service capacity of an asset (current replacement cost)
 income approach – converts future amounts (cash flows or income and
expenses) to a single current (discounted) amount, reflecting current market
expectations about those future amounts.
In some cases, a single valuation technique will be appropriate, whereas in others
multiple valuation techniques will be appropriate.
Disclosure
IFRS 13 requires an entity to disclose information that helps users of its financial
statements assess both of the following:
 for assets and liabilities that are measured at fair value on a recurring or non-
recurring basis in the statement of financial position after initial recognition, the
valuation techniques and inputs used to develop those measurements
 for fair value measurements using significant unobservable inputs (Level 3), the
effect of the measurements on profit or loss or other comprehensive income for
the period.
Disclosure exemptions
The disclosure requirements are not required for:
 plan assets measured at fair value in accordance with IAS 19 Employee Benefits
 retirement benefit plan investments measured at fair value in accordance with
IAS 26 Accounting and Reporting by Retirement Benefit Plans
 assets for which recoverable amount is fair value less costs of disposal in
accordance with IAS 36 Impairment of Assets.
Identification of classes
Where disclosures are required to be provided for each class of asset or liability, an
entity determines appropriate classes on the basis of the nature, characteristics and
risks of the asset or liability, and the level of the fair value hierarchy within which the fair
value measurement is categorised.
Determining appropriate classes of assets and liabilities for which disclosures about fair
value measurements should be provided requires judgement. A class of assets and
liabilities will often require greater disaggregation than the line items presented in the
statement of financial position. The number of classes may need to be greater for fair
value measurements categorised within Level 3.
Some disclosures are differentiated on whether the measurements are:
 Recurring fair value measurements – fair value measurements required or
permitted by other IFRSs to be recognised in the statement of financial position
at the end of each reporting period
  Non-recurring fair value measurements are fair value measurements that are
required or permitted by other IFRSs to be measured in the statement of financial
position in particular circumstances.
Specific disclosures required
To meet the disclosure objective, the following minimum disclosures are required for
each class of assets and liabilities measured at fair value (including measurements
based on fair value within the scope of this IFRS) in the statement of financial position
after initial recognition (note these are requirements have been summarised and
additional disclosure is required where necessary):
 the fair value measurement at the end of the reporting period*
 for non-recurring fair value measurements, the reasons for the measurement*
 the level of the fair value hierarchy within which the fair value measurements are
categorised in their entirety (Level 1, 2 or 3)
 for assets and liabilities held at the reporting date that are measured at fair value
on a recurring basis, the amounts of any transfers between Level 1 and Level 2
of the fair value hierarchy, the reasons for those transfers and the entity's policy
for determining when transfers between levels are deemed to have occurred,
separately disclosing and discussing transfers into and out of each level
 for fair value measurements categorised within Level 2 and Level 3 of the fair
value hierarchy, a description of the valuation technique(s) and the inputs used in
the fair value measurement, any change in the valuation techniques and the
reason(s) for making such change (with some exceptions)*
 for fair value measurements categorised within Level 3 of the fair value hierarchy,
quantitative information about the significant unobservable inputs used in the fair
value measurement (with some exceptions)
 for recurring fair value measurements categorised within Level 3 of the fair value
hierarchy, a reconciliation from the opening balances to the closing balances,
disclosing separately changes during the period attributable to the following:
o total gains or losses for the period recognised in profit or loss, and the line
item(s) in profit or loss in which those gains or losses are recognised –
separately disclosing the amount included in profit or loss that is
attributable to the change in unrealised gains or losses relating to those
assets and liabilities held at the end of the reporting period, and the line
item(s) in profit or loss in which those unrealised gains or losses are
recognised
o total gains or losses for the period recognised in other comprehensive
income, and the line item(s) in other comprehensive income in which
those gains or losses are recognised
o purchases, sales, issues and settlements (each of those types of changes
disclosed separately)
 o the amounts of any transfers into or out of Level 3 of the fair value
hierarchy, the reasons for those transfers and the entity's policy for
determining when transfers between levels are deemed to have occurred.
Transfers into Level 3 shall be disclosed and discussed separately from
transfers out of Level 3
 for fair value measurements categorised within Level 3 of the fair value hierarchy,
a description of the valuation processes used by the entity
 for recurring fair value measurements categorised within Level 3of the fair value
hierarchy:
o a narrative description of the sensitivity of the fair value measurement to
changes in unobservable inputs if a change in those inputs to a different
amount might result in a significantly higher or lower fair value
measurement. If there are interrelationships between those inputs and
other unobservable inputs used in the fair value measurement, the entity
also provides a description of those interrelationships and of how they
might magnify or mitigate the effect of changes in the unobservable inputs
on the fair value measurement
o for financial assets and financial liabilities, if changing one or more of the
unobservable inputs to reflect reasonably possible alternative assumptions
would change fair value significantly, an entity shall state that fact and
disclose the effect of those changes. The entity shall disclose how the
effect of a change to reflect a reasonably possible alternative assumption
was calculated
 if the highest and best use of a non-financial asset differs from its current use, an
entity shall disclose that fact and why the non-financial asset is being used in a
manner that differs from its highest and best use.
Quantitative disclosures are required to be presented in a tabular format unless another
format is more appropriate.