Fair value accounting
in IFRS financial
Considerable attention is currentiy being given to
the use of fair vaiues and fair value accounting in
financiai statements prepared under internationai
Financiai Reporting Standards. This month's
coiumn ciarifies what is meant by fair value
accounting and when iFRS require or allow its use.
It also identifies the circumstances in which IFRS
requires the use of fair value in the application of
the historical cost model.
In IFRS financial statements, fair values are used
in the three circumstances:
• to measure some assets and liabilities at each
balance sheet date;
• to measure some assets and liabilities on their
initial recognition in the financial statements or
on transition from national GAAP to IFRS; and
• to determine some asset impairments.
Only the first of these circumstances should be
described as 'fair value accounting'. It is the only
circumstance that requires annual measurement
at fair value and the recognition of unrealised
gains in the financial statements.
IFRS require measurement at fair value at
each balance sheet date and the recognition
of unrealised gains, in other words, fair value
accounting only for:
U most equity investments;
• some investments in debt securities;
• other financial assets and financial liabilities
that are heid for trading;
• the hedged item in a fair value hedge;
M defined benefit plan assets;
• some non-financial liabilities (provisions); and
• some biological assets.
In most, but not all, cases, changes in fair vaiue
are included in profit or loss, in most of these
cases, the requirement for fair vaiue measurement
is a direct consequence of the adoption of IFRS.
iFRS ailows, but does not require, measurement
at fair value at each balance sheet date and the
recognition of unrealised gains for:
• investment property;
• property, plant and equipment;
• intangible assets; and
• financial assets that...