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IFRS 13 Fair Value Measurement is an accounting standard that sets out the framework for measuring fair value. 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.
IFRS 13 uses the fair value hierarchy to rank the inputs that are used in measuring the fair value of assets and liabilities.
There are three levels in the fair value hierarchy:
- Level 1 inputs: These are the most reliable inputs, and they are based on quoted prices in active markets for identical assets or liabilities. For example, the fair value of a publicly traded stock like Apple Inc. would be considered to be a Level 1 input.
- Level 2 inputs: These inputs are less reliable than Level 1 inputs, but they are still based on observable market data. For example, the fair value of a privately held company might be considered to be a Level 2 input, as it can be valued based on the prices of similar companies that have been recently sold.
- Level 3 inputs: These inputs are the least reliable, and they are based on unobservable data. For example, the fair value of a piece of real estate might be considered to be a Level 3 input, as there is no active market for real estate and businesses must use valuation models to estimate the fair value.
This blog post compiles for you guidance made available by the Big 4 and other Audit firms to help you with the learning and understanding of IFRS 13 Fair value measurement.
Fun fact:
There is no single "correct" way to measure fair value, and the valuation methodology used will depend on the specific asset or liability being measured and the availability of market data.
According to the 2023 BrandZ report by WPP and Kantar, the world's three most valuable brands are: Amazon ($299.3 billion), Apple ($297.5 billion) and Google ($281.3 billion).
The fair value of the world's financial assets is estimated to be over $400 trillion, but the market value of these assets can fluctuate significantly. For example, the market value of the world's stock markets fell by over $30 trillion in March 2020 during the COVID-19 pandemic. This means that fair value measurement is one of the most important accounting processes in the world economy.
The below resources (PDF, videos and eLearns) provide comprehensive coverage of IFRS 13 Fair value measurement, including its key requirements and practical guidance. Whether you're new to IFRS 13 or looking for a refresher, these resources are valuable.
IFRS 13 Fair value measurement practical guide
Source: KPMG
KPMG Fair value measurement - IFRS 13 Pdf
Source: EY
EY Fair value measurement - IFRS 13 Pdf
Source: PwC
PwC Fair value measurement - IFRS 13 Pdf
Source: Deloitte
eLearn
Source: Deloitte
Deloitte Fair value measurement - IFRS 13 eLearn
PS: All resources above are sourced directly from the public domain of the owners as made publicly available by them and are compiled here by IFRS IS EASY for your convenience.
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