October 2011
International Financial Reporting Standards
World Bank Workshop - Poland
October 2011
IFRS 13
Fair Value Measurement
The views expressed in this presentation are those of the presenter,
not necessarily those of the IASB or IFRS Foundation.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Agenda
• Scope of IFRS 13
• Fair value measurement principles
• Disclosures about fair value
• Effective date and transition
IFRS 13 Fair Value Measurement
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Scope of IFRS 13
“Where fair value is used in IFRSs”
• Excluded from scope:
– IFRS 2
– IAS 17
• Disclosures not required for:
– IAS 19, IAS 26
– IAS 36 fair value less costs of disposal
• Not required for measurements similar to fair value:
– IAS 2
– IAS 37
– IAS 36 (value in use)
IFRS 13 Fair Value Measurement
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Clarifying the measurement objective
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Fair value is 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
– Use vs sale of asset
– Fulfilment of liability
• Market-based
– Not entity-specific
• Orderly transaction
– Not forced sale or liquidation (even with exit price notion)
• Current price
– Market conditions at the measurement date
IFRS 13 Fair Value Measurement
Clarifying the measurement objective
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Is there a quoted price in an active
market for an identical asset or liability?
Yes
Use this quoted price to
measure fair value (Level 1)
No
Replicate a market price
using another valuation technique*
(Levels 2 and 3)
* A valuation technique must maximise the use of
relevant observable inputs and minimise the use
of unobservable inputs.
IFRS 13 Fair Value Measurement
The asset or liability:
“What” is being measured?
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• Unit of account
– IAS 41: A biological asset shall be measured on initial
recognition and at the end of each reporting period at its
fair value less costs to sell…
• Characteristics
– Which characteristics would a market participant buyer
take into account?
–
–
–
–
IFRS 13 Fair Value Measurement
Age and remaining economic life
Condition
Location
Restrictions on use or sale
Highest and best use:
“What” is being measured?
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• Fair value assumes a non-financial asset is used by market
participants at its highest and best use
– The use of a non-financial asset by market participants that
maximises the value of the asset
– Physically possible
– Legally permissible
– Financially feasible
• Highest and best use is usually (but not always) the current
use
– If for competitive reasons an entity does not intend to use the asset
at its highest and best use, the fair value of the asset still reflects its
highest and best use by market participants (defensive value)
• Does not apply to financial instruments or liabilities
IFRS 13 Fair Value Measurement
Valuation premise:
“What” is being measured?
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• A non-financial asset either:
– Provides maximum value through its use in combination
with other assets and liabilities as a group
– Is its value influence by it being ‘operated’ with other
assets?
– An example: equipment used in production facility
– Provides maximum value through its use on a standalone basis
– Is its value independent of its use with other assets?
– An example: a vehicle or an investment property
• Does not apply to financial instruments or liabilities
IFRS 13 Fair Value Measurement
The exit transaction:
“Where” would a transaction happen?
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• In the principal market:
– The market with the greatest volume and level of activity
for the asset or liability
• Or (if no principal market) in the most advantageous
market:
– The market that maximises the amount that would be
received to sell the asset and minimises the amount that
would be paid to transfer the liability
• In most cases, these markets will be the same
– Arbitrage opportunities will be competed away
IFRS 13 Fair Value Measurement
Market participants:
“Who” would transact for the item?
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• Market participants are buyers and sellers in the principal (or
most advantageous) market who are:
– Independent of each other
– Not related parties
– Knowledgeable and sufficiently informed about the asset or liability
and the transaction
– Due diligence efforts
– Able to enter into a transaction for the asset or liability
– Has a use for the asset
– Can fulfil the obligation
– Willing to enter into a transaction for the asset or liability
– Not forced or otherwise compelled
• Market participants act in their economic best interest
IFRS 13 Fair Value Measurement
Liabilities and shareholders’ equity:
Transfer notion
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• Fair value assumes a transfer to a market participant
who takes on the obligation
– The liability or equity instrument is not extinguished in
the transfer
– Restrictions on transfer are already reflected in inputs;
no additional adjustment required
– Some liabilities and equity instruments are held by
entities as assets and some are not
– Debt instruments vs decommissioning obligations
– Fair value reflects the effect of non-performance risk
– The risk that the entity will not fulfil the obligation
– Includes credit risk
IFRS 13 Fair Value Measurement
Fair value disclosures
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• More information for Level 3:
– Quantitative disclosure of unobservable inputs and
assumptions used
– Reconciliation of opening to closing balances
– Description of valuation process in place
– Sensitivity analysis:
– Narrative discussion about sensitivity to changes in
unobservable inputs, including inter-relationships
between inputs that magnify or mitigate the effect on the
measurement
– Quantitative sensitivity analysis for financial instruments
IFRS 13 Fair Value Measurement
Effective date and transition
• Effective 1 January 2013
• Earlier application permitted
• Prospective application, no comparatives
IFRS 13 Fair Value Measurement
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Differences between IFRS 13
and Topic 820
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Topic
Reason for difference
NAV practical expedient
Different accounting for investment companies (which in
IFRSs may or may not mean investments are measured in
accordance with IFRS 13) means IASB cannot yet allow a
practical expedient.
Deposit liabilities
Different requirements in IFRSs and US GAAP (in different
locations) for measuring fair value of deposit liabilities
Disclosures
• IFRS does not allow net presentation of derivatives
• IFRS requires quantitative sensitivity analysis for
financial instruments
• In IFRS non-publicly accountable entities are covered
by SME standard
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Questions or comments?
Expressions of individual views
by members of the IASB and
its staff are encouraged.
The views expressed in this
presentation are those of the
presenter. Official positions of
the IASB on accounting matters
are determined only after
extensive due process
and deliberation.
IFRS 13 Fair Value Measurement
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