IFRS 13 on fair value measurement has a significant impact on the preparation and presentation of financial statements, including the balance sheet, the statement of comprehensive income, and the notes to the financial statements. This standard applies only to assets and liabilities whose values are determined at fair value.
To determine which assets and liabilities are measured at fair value, the entity should refer to the specific standards related to each item. The table below lists the linkages between the relevant standards and IFRS 13:
| IFRS | Requirement | Permitted | Interpretation |
| IFRS 3 – Business Combinations | x | All assets and liabilities in a business combination are measured at fair value at the acquisition date. | |
| IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations | x | Non-current assets or disposal groups, once classified as held for sale, are measured at the lower of their carrying amount and fair value less costs to sell. | |
| IAS 16 – Property, Plant and Equipment | x | An entity is permitted to choose either the cost model or the revaluation model for subsequent measurement. Assets measured under the revaluation model are presented at fair value at the revaluation date less any subsequent depreciation and impairment, provided that the fair value can be measured reliably. | |
| IAS 19 – Employee Benefits | x | Applicable to defined benefit pension plans: measuring the net defined benefit asset or liability requires applying the projected unit credit method, attributing benefits to periods of service, and using actuarial assumptions. The fair value of any plan assets is deducted from the present value of the defined benefit obligation to determine the deficit or surplus. | |
| IAS 28 – Accounting for Investments in Associates and Joint Ventures & IFRS 11 – Joint Arrangements | x | When an investment in an associate or joint venture is held or indirectly held through a venture capital organization, mutual fund, unit trust, or similar entities including investment-linked insurance funds, the investor may elect to measure the investment at fair value through profit or loss in accordance with IFRS 9. | |
| IAS 36 – Impairment of Assets | x | IAS 36 aims to ensure that an asset is not carried at more than its recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and value in use. | |
| IAS 38 – Intangible Assets | x | An entity is permitted to choose either the cost model or the revaluation model for subsequent measurement. Assets measured under the revaluation model are presented at fair value at the revaluation date less any subsequent amortization and impairment, provided that the fair value can be measured reliably. | |
| IFRS 9 – Financial Instruments | x | All financial instruments are initially measured at fair value, plus or minus transaction costs in the case of financial assets or financial liabilities not measured at fair value through profit or loss. | |
| IAS 40 – Investment Property | x | An entity is permitted to choose either the fair value model or the cost model for subsequent measurement. | |
| IAS 41 – Agriculture | x | Biological assets are measured at initial recognition and at the end of each reporting period at fair value less costs to sell. Agricultural produce harvested from an entity’s biological assets must be measured at fair value less costs to sell at the point of harvest. |
IFRS 13 – Fair Value Measurement introduces the definition of fair value, establishes a framework for measuring fair value, and sets out disclosure requirements related to fair value measurement. It focuses on:
- Establishing a single set of rules for all fair value measurement methods, thereby reducing complexity and improving consistency in applying fair value measurement principles.
- Clearly defining fair value and providing transparency through detailed disclosure and presentation requirements regarding fair value.
1. Key Issues to Note During Transition
| Content | IFRS |
| IFRS 13 – Fair Value Measurement | |
| Objective | IFRS 13 was issued to replace the fair value measurement guidance in existing IFRS standards with a single unified standard. IFRS 13 defines fair value, provides guidance on how to determine fair value, and sets out disclosure requirements related to fair value measurement. However, IFRS 13 does not change the requirements regarding which items must be measured or disclosed at fair value. |
| Key Concepts | (a) 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. (b) Active market: A market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. (c) Principal market: The market with the greatest volume and level of activity for the asset or liability. (d) Most advantageous market: The market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after considering transaction and transport costs. |
| Fair Value Hierarchy Levels | (a) Level 1: Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. (b) Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. (c) Level 3: Unobservable inputs for the asset or liability. |
| Objective of Fair Value Measurement | To estimate the price at which an orderly transaction to sell an asset or transfer a liability would take place between market participants at the measurement date under current market conditions. |
| Valuation Techniques | The company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. Three widely used valuation techniques are: (a) Market approach: Uses prices and other relevant information generated by market transactions involving identical or comparable (i.e., similar) assets, liabilities, or a group of assets and liabilities. (b) Cost approach: A valuation technique that reflects the amount that would be required currently to replace the service capacity of an asset. (c) Income approach: Converts future amounts (cash flows or income and expenses) to a single present value (discounted), reflecting current market expectations about those future amounts. In some cases, a single valuation technique will be appropriate, but in other cases, multiple valuation techniques may be combined if deemed suitable. |
| Disclosures | IFRS 13 requires entities to disclose information that enables users of the financial statements to understand: (a) For assets and liabilities measured at fair value on a recurring or non-recurring basis in the balance sheet after initial recognition: the valuation techniques and inputs used to develop those measurements; (b) For fair value measurements using significant unobservable inputs: the effect of the measurements on profit or loss or other comprehensive income for the period; (c) IFRS 13 requires specific disclosures regarding fair value measurements during the reporting period, including the fair value hierarchy. |
2. Tasks to Be Performed
- Step 1: Identify the balances or transactions that must (or may) be measured or disclosed at fair value and determine when such measurement (or disclosure) is required.
- Step 2: Refer to IFRS 13 for guidance on how to determine fair value at initial recognition.
- Step 3: Refer to the relevant IFRS to determine whether subsequent measurement of the account balances is at fair value and/or whether fair value disclosures are required.
