IFRS 13

Fair Value Measurement

1Objective and scope

IFRS 13 defines fair value, sets out in a single IFRS a framework for measuring fair value, and requires disclosures about fair value measurements. It applies whenever another IFRS requires or permits fair value measurements or disclosures, bringing a previously scattered set of fair value guidance under one roof.

2Key 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 - an exit price, not an entity-specific value.

Principal market

The market with the greatest volume and level of activity for the asset or liability; in its absence, the most advantageous market (the one that maximises the amount received, or minimises the amount paid, after transaction and transport costs) is used instead.

Highest and best use

For a non-financial asset, the use by market participants that would maximise the value of the asset, whether or not the entity intends to use it that way.

3The fair value hierarchy

Level	Inputs
Level 1	Quoted prices in ACTIVE markets for IDENTICAL assets or liabilities the entity can access at the measurement date - the highest priority, used without adjustment
Level 2	Inputs other than quoted Level 1 prices that are observable, directly or indirectly - e.g. quoted prices for similar instruments, or inputs derived from or corroborated by observable market data
Level 3	Unobservable inputs, used only when relevant observable inputs are unavailable - e.g. the entity's own assumptions about future cash flows, discount rates, or volatility

An entity uses valuation techniques appropriate to the circumstances and for which sufficient data is available, maximising the use of relevant observable inputs and minimising the use of unobservable inputs: the market approach (prices from actual market transactions in identical or comparable assets), the cost approach (current replacement cost), and the income approach (converting future cash flows or income/expenses to a single discounted present value).

4Presentation and disclosure

For each class of asset or liability measured at fair value: the level of the fair value hierarchy within which the measurement falls
A description of the valuation technique(s) and the inputs used
For Level 3 measurements, a reconciliation of the opening to closing balance, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs

5Examinable focus

What KASNEB tests

Classifying a given fair value measurement into the correct hierarchy level from a description of its inputs is the recurring question type, along with the core definitional point that fair value is a market-based EXIT price, not what the entity itself would pay or an entity-specific value in use. IFRS 13 underpins fair value measurements required across IFRS 3, IFRS 9, IAS 16's revaluation model, IAS 40 and IAS 41, so it is often examined indirectly inside those questions.