Fair value measurement

1. Summary of IFRS 13
Objective
IFRS 13: [IFRS 13:1]
 defines fair value
 sets out in a singleIFRS a framework for measuring
fair value
 requires disclosures aboutfair valuemeasurements.
IFRS 13 applies when another IFRS requires or permits fair
valuemeasurements or disclosures aboutfair value
measurements (and measurements, such as fair valueless
costs to sell,based on fair valueor disclosures aboutthose
measurements), except for: [IFRS 13:5-7]
 share-based payment transactions within thescope
of IFRS 2 Share-based Payment
 leasingtransactionswithin the scopeof IAS
17 Leases
 measurements that have some similarities to fair
valuebut that are not fair value,such as net
realisablevaluein IAS 2 Inventories or valuein use
in IAS 36 Impairment of Assets.
Additional exemptions apply to the disclosures required by
IFRS 13.
Key definitions
[IFRS 13:Appendix A]
The pricethat would be received to sell an assetor paid to
transfer a liability in an orderly transaction between market
participantsatthe measurement date
A market in which transactions for theassetor liability take
placewith sufficientfrequency and volume to provide pricing
information on an ongoing basis
The pricethat would be received to sell an assetor paid to
transfer a liability
The use of a non-financial assetby market participants that
would maximisethe valueof the assetor the group of assets
and liabilities (e.g.a business) within which the asset would
be used
The market that maximises the amount that would be
received to sell the assetor minimises theamount that would
be paid to transfer the liability,after takinginto account
transaction costs and transportcosts
The market with the greatest volume and level of activity for
the assetor liability
Fair valuehierarchy
Overview
IFRS 13 seeks to increaseconsistency and comparability in fair
valuemeasurements and related disclosures through a 'fair
valuehierarchy'.The hierarchy categorises theinputs 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 unobservableinputs.[IFRS 13:72]
If the inputs used to measure fair valuearecategorised into
different levels of the fair valuehierarchy,thefair value
measurement is categorised in its entirety in the level of the
lowest level input that is significantto the entire
measurement (based on the application of judgement). [IFRS
13:73]
Level 1 inputs
Level 1 inputs arequoted prices in activemarkets for identical
assets or liabilities thatthe entity can access atthe
measurement date. [IFRS 13:76]
A quoted market pricein an active market provides the most
reliableevidenceof fair valueand is used without adjustment
to measure fair valuewhenever available,with limited
exceptions. [IFRS 13:77]
If an entity holds a position in a singleassetor liability and the
assetor liability is traded in an activemarket, the fair valueof
the assetor liability is measured within Level 1 as the product
of the quoted pricefor the individual assetor liability and the
quantity held by the entity, even if the market's normal daily
tradingvolume is not sufficient to absorb the quantity held
and placingorders to sell the position in a singletransaction
might affect the quoted price.[IFRS 13:80]
Level 2 inputs
Level 2 inputs areinputs other than quoted market prices
included within Level 1 that areobservable for the assetor
liability,either directly or indirectly.[IFRS 13:81]
Level 2 inputs include:
 quoted prices for similarassets or liabilities in active
markets
 quoted prices for identical or similarassets or
liabilities in markets that arenot active
 inputs other than quoted prices thatare observable
for the assetor liability,for example
o interest rates and yield curves observableat
commonly quoted intervals

2. o implied volatilities
o creditspreads
 inputs that are derived principally fromor
corroborated by observablemarket data by
correlation or other means ('market-corroborated
inputs').
Level 3 inputs
Level 3 inputs inputs areunobservableinputs for the assetor
liability.[IFRS 13:86]
Unobservableinputs are used to measure fair valueto the
extent that relevant observableinputs arenot available,
thereby allowingfor situations in which thereis little,if any,
market activity for the assetor liability atthe measurement
date. An entity develops unobservableinputs usingthe best
information availablein the circumstances,which might
includethe entity's own data, takinginto accountall
information aboutmarket participantassumptions thatis
reasonably available.[IFRS 13:87-89]
Measurement of fair value
Overview of fair value measurement approach
The objective of a fair valuemeasurement is to estimate the
priceat which an orderly transaction to sell the assetor to
transfer the liability would take placebetween market
participantsatthe measurement date under current market
conditions.A fair valuemeasurement requires an entity to
determine all of the following:[IFRS 13:B2]
 the particularassetor liability thatis the subjectof
the measurement (consistently with its unitof
account)
 for a non-financial asset,the valuation premisethat
is appropriatefor the measurement (consistently
with its highest and best use)
 the principal (or mostadvantageous) market for the
assetor liability
 the valuation technique(s) appropriatefor the
measurement, consideringthe availability of data
with which to develop inputs that represent the
assumptions thatmarket participants would use
when pricingthe assetor liability and the level of
the fair valuehierarchy within which the inputs are
categorised.
Guidance on measurement
IFRS 13 provides the guidanceon the measurement of fair
value,includingthe following:
 An entity takes into accountthe characteristicsof
the assetor liability beingmeasured that a market
participantwould takeinto accountwhen pricingthe
assetor liability atmeasurement date (e.g. the
condition and location of the assetand any
restrictions on the saleand use of the asset) [IFRS
13:11]
 Fair valuemeasurement assumes an orderly
transaction between market participants atthe
measurement date under current market conditions
[IFRS 13:15]
 Fair valuemeasurement assumes a transaction
takingplacein the principal marketfor the assetor
liability,or in the absence of a principal market, the
most advantageous market for the assetor liability
[IFRS 13:24]
 A fair valuemeasurement of a non-financial asset
takes into account its highestand best use [IFRS
13:27]
 A fair valuemeasurement of a financial or non-
financial liability or an entity's own equity
instruments assumes itis transferred to a market
participantatthe measurement date, without
settlement, extinguishment, or cancellation atthe
measurement date [IFRS 13:34]
 The fair valueof a liability reflects non-performance
risk (the risk the entity will notfulfil an obligation),
includingan entity's own credit risk and assuming
the same non-performance risk before and after the
transfer of the liability [IFRS 13:42]
 An optional exception applies for certain financial
assets and financial liabilitieswith offsetting
positions in marketrisks or counterparty credit risk,
provided conditions aremet (additional disclosureis
required). [IFRS 13:48, IFRS 13:96]
Valuation techniques
An entity uses valuation techniques appropriatein the
circumstances and for which sufficientdata areavailableto
measure fair value,maximisingtheuse of relevant observable
inputs and minimisingtheuse of unobservableinputs.[IFRS
13:61, IFRS 13:67]
The objective of usinga valuation techniqueis to estimate the
priceat which an orderly transaction to sell the assetor to
transfer the liability would take placebetween market
participantsand the measurement date under current market
conditions.Three widely used valuation techniques are:[IFRS
13:62]

3.  market approach – uses prices and other relevant
information generated by market transactions
involvingidentical 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 replacethe servicecapacity of
an asset(current replacement cost)
 income approach – converts future amounts (cash
flows or income and expenses) to a singlecurrent
(discounted) amount, reflecting current market
expectations about those future amounts.
In some cases,a singlevaluation techniquewill be
appropriate,whereas in others multiplevaluation techniques
will beappropriate.[IFRS 13:63]
Disclosure
Disclosure objective
IFRS 13 requires an entity to discloseinformation thathelps
users of its financial statements assessboth of the following:
[IFRS 13:91]
 for assets and liabilitiesthatare measured at fair
valueon a recurringor non-recurringbasis in the
statement of financial position after initial
recognition,the valuation techniques and inputs
used to develop those measurements
 for fair valuemeasurements usingsignificant
unobservableinputs (Level 3), the effect of the
measurements on profit or loss or other
comprehensive income for the period.
Disclosure exemptions
The disclosurerequirements are not required for: [IFRS 13:7]
 plan assets measured at fair valuein accordance
with IAS 19 Employee Benefits
 retirement benefit plan investments measured at
fair valuein accordancewith IAS 26 Accounting and
Reporting by Retirement Benefit Plans
 assets for which recoverable amount is fair valueless
costs of disposal in accordancewith IAS
36 Impairment of Assets.
Identification of classes
Where disclosures arerequired to be provided for each class
of assetor liability,an entity determines appropriateclasses
on the basis of the nature, characteristicsand risks of the
assetor liability,and the level of the fair value
hierarchy within which the fair valuemeasurement is
categorised.[IFRS 13:94]
Determining appropriateclassesof assets and liabilities for
which disclosures aboutfair valuemeasurements should be
provided requires judgement. A class of assets and liabilities
will often require greater disaggregation than the lineitems
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 aredifferentiated on whether the
measurements are:
 Recurringfair valuemeasurements – fair value
measurements required or permitted by other IFRSs
to be recognised in the statement of financial
position atthe end of each reporting period
 Non-recurringfair valuemeasurements are fair value
measurements that arerequired or permitted by
other IFRSs to be measured in the statement of
financial position in particular circumstances.
Specific disclosures required
To meet the disclosureobjective,the followingminimum
disclosures arerequired for each class of assets and liabilities
measured at fair value(includingmeasurements based on fair
valuewithin the scope of this IFRS) in the statement of
financial position after initial recognition (notethese are
requirements have been summarised and additional
disclosureis required where necessary):[IFRS 13:93]
 the fair valuemeasurement at the end of the
reporting period*
 for non-recurringfair valuemeasurements, the
reasons for the measurement*
 the level of the fair valuehierarchy within which the
fair valuemeasurements arecategorised in their
entirety (Level 1, 2 or 3)*
 for assets and liabilitiesheld atthe reporting date
that are measured at fair valueon a recurringbasis,
the amounts of any transfers between Level 1
and Level 2 of the fair valuehierarchy,the reasons
for those transfers and the entity's policy for
determining when transfers between levels are
deemed to have occurred, separately disclosingand
discussingtransfers into and out of each level
 for fair valuemeasurements categorised within Level
2 and Level 3 of the fair valuehierarchy,a
description of the valuation technique(s) and the
inputs used in the fair valuemeasurement, any

4. change in the valuation techniques and the reason(s)
for makingsuch change (with some exceptions)*
 for fair valuemeasurements categorised within Level
3 of the fair valuehierarchy,quantitative
information aboutthe significantunobservable
inputs used in the fair valuemeasurement (with
some exceptions)
 for recurringfair valuemeasurements categorised
within Level 3 of the fair valuehierarchy,a
reconciliation fromthe opening balances to the
closingbalances,disclosingseparately changes
duringthe period attributableto 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 arerecognised – separately
disclosingthe amount included in profitor
loss thatis attributableto the change in
unrealised gains or losses relatingto those
assets and liabilities held atthe end of the
reporting period, and the lineitem(s) in
profitor loss in which thoseunrealised
gains or losses arerecognised
o total gains or losses for the period
recognised in other comprehensive income,
and the lineitem(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 valuehierarchy,the
reasons for those transfers and the entity's
policy for determining when transfers
between levels aredeemed to have
occurred. Transfers into Level 3 shall be
disclosed and discussed separately from
transfers out of Level 3
 for fair valuemeasurements categorised within Level
3 of the fair valuehierarchy,a description of the
valuation processes used by the entity
 for recurringfair valuemeasurements categorised
within Level 3of the fair valuehierarchy:
o a narrativedescription of the sensitivity of
the fair valuemeasurement to changes in
unobservableinputs if a change in those
inputs to a different amount might resultin
a significantly higher or lower fair value
measurement. If there are
interrelationships between those inputs and
other unobservableinputs used in the fair
valuemeasurement, the entity also
provides a description of those
interrelationships and of how they might
magnify or mitigate the effect of changes in
the unobservableinputs on the fair value
measurement
o for financial assets and financial liabilities,if
changingone or more of the unobservable
inputs to reflect reasonably possible
alternativeassumptions would changefair
valuesignificantly,an entity shall statethat
fact and disclosethe effect of those
changes. The entity shall disclosehow the
effect of a change to reflect a reasonably
possiblealternativeassumption 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 assetis being
used in a manner that differs from its highest and
best use*.
'*' in the list above indicates that the disclosure is also
applicable to a class of assets or liabilities which is not
measured at fair value in the statement of financial position
but for which the fair value is disclosed. [IFRS 13:97]
Quantitativedisclosures arerequired to be presented in a
tabular formatunless another format is more appropriate.
[IFRS 13:99]
Effective date and transition
[IFRS 13:Appendix C]
IFRS 13 is applicableto annual reportingperiods beginningon
or after 1 January 2013.An entity may apply IFRS 13 to an
earlier accountingperiod,but if doingso itmust disclosethe
fact.
Application is required prospectively as of the beginningof
the annual reportingperiod in which the IFRS is initially
applied.Comparativeinformation need not be disclosed for
periods before initial application.