This free, guided checker walks your finance team through the key decision points for IFRS 13 Fair Value Measurement. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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IFRS 13 defines fair value and sets a framework for measurement and disclosure but does not dictate when fair value is required; the triggering standard must be identified first.
Apply the measurement basis of the governing standard; IFRS 13 does not apply to items outside its scope, including IFRS 2, IFRS 16, IAS 2 net realizable value, and IAS 36 value in use (IFRS 13.5-6).
Official guidance: IFRS issued standards
The unit of account may be a single asset, a group of assets, a liability, or an equity instrument; it must align with the scope standard and not be split or combined inappropriately.
Define the unit of account in accordance with the standard that requires the fair value measurement (IFRS 13.14) before selecting inputs or valuation techniques.
Official guidance: IFRS issued standards
Fair value assumes an orderly transaction in the principal market; when no principal market exists, use the most advantageous market accessible to the entity.
Identify the principal market by volume and level of activity, or the most advantageous market in its absence, before measuring the exit price (IFRS 13.16-18).
Official guidance: IFRS issued standards
Fair value is an exit price, not an entry price; transaction costs are excluded but transport costs to the principal market are included when relevant.
Rebase the measurement on the IFRS 13.24 exit price; exclude transaction costs (IFRS 13.25) but include transport costs when location is a characteristic of the asset (IFRS 13.26).
Official guidance: IFRS issued standards
The market approach uses prices from comparable transactions; the income approach discounts future cash flows; the cost approach reflects current replacement cost for certain tangible assets. Whatever the approach, IFRS 13.61 requires techniques appropriate to the circumstances that maximize observable inputs and minimize unobservable inputs, and IFRS 13.63 contemplates using multiple techniques and evaluating the reasonableness of the range.
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Official guidance: IFRS issued standards
A quoted price in an active market for an identical item is a Level 1 input and generally requires no adjustment unless the unit of account differs from the traded unit.
Measure at Level 1 using the unadjusted quoted price; adjustments for blockage factors are prohibited (IFRS 13.77, 13.80).
Official guidance: IFRS issued standards
Level 2 inputs include quoted prices for similar items, interest rates, yield curves, and credit spreads observable in markets even when the item itself is not actively traded.
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Official guidance: IFRS issued standards
The hierarchy level is determined by the lowest-level input that is significant to the entire measurement; a single Level 3 input can reclassify an otherwise observable measurement to Level 3.
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Official guidance: IFRS issued standards
Level 3 inputs reflect the entity's own assumptions about assumptions market participants would use when observable data is unavailable, including projected cash flows and entity-specific risk premiums.
Categorize the measurement using the lowest-level input that is significant to the entire measurement (IFRS 13.73).
Official guidance: IFRS issued standards
For recurring Level 3 measurements, IFRS 13.93(h) requires a narrative description of sensitivity to changes in significant unobservable inputs, including interrelationships between inputs that magnify or mitigate the effect. For financial assets and financial liabilities, a quantitative analysis is also required when changing one or more inputs to reasonably possible alternatives would change fair value significantly. A common gap is disclosing input ranges without explaining directional sensitivity.
Prepare the IFRS 13.93(h) sensitivity narrative, and quantitative analysis for financial instruments, before finalizing recurring fair value reporting.
Official guidance: IFRS issued standards
Disclosures include transfers between hierarchy levels, valuation techniques used, and for Level 3 a reconciliation of opening to closing balances with gains and losses classified by line item.
Finalize the fair value measurement with technique, hierarchy, transfer, and Level 3 reconciliation documentation (IFRS 13.93). Complete the IFRS 13.91-93 disclosure pack, including technique descriptions, hierarchy tables, and the Level 3 roll-forward.
Official guidance: IFRS issued standards
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