New Zealand Financial Accounting.
1 I n t r o d u c t i o n
IFRS 13 provides a principles-based framework for measuring fair value in IFRS. This is based on a number of key concepts including unit of account; exit price; valuation premise; highest and best use; principal market; market participant assumptions and the fair value hierarchy. Fair value is an important measurement on the basis of financial reporting. It provides information about what an entity might realize if it sold an asset or might pay to transfer a liability. In recent years, the use of fair value as a measurement basis for financial reporting has been expanded. Determining fair value often requires a variety of assumptions as well as significant judgment. Thus, investors desire timely and transparent information about how fair value is measured, its impact on current financial statements, and its potential to impact future periods and the extent to which IFRS13 addresses the challenges previously associated with the measurement of fair value.
2 The Definition of Fair Value
Prior to the introduction of IFRS 13 many standards defined fair value as:“the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction”
The New definition of fair value in IFRS 13 is as follows:“...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.”
Why change the definition?
1 The new definition requires the use of an exit price
2 To provide clarity to the term “settling”
3 To establish that fair value occurs at the measurement date
3 The inevitability of the fair value measurement
Fair value is the product of market economy, the use of fair value is the objective requirement of the social and economic development.
1 Use of fair value measurement is accord with the requirement of accounting matching principle. Matching principle is usually
IFRS 13 provides a principles-based framework for measuring fair value in IFRS. This is based on a number of key concepts including unit of account; exit price; valuation premise; highest and best use; principal market; market participant assumptions and the fair value hierarchy. Fair value is an important measurement on the basis of financial reporting. It provides information about what an entity might realize if it sold an asset or might pay to transfer a liability. In recent years, the use of fair value as a measurement basis for financial reporting has been expanded. Determining fair value often requires a variety of assumptions as well as significant judgment. Thus, investors desire timely and transparent information about how fair value is measured, its impact on current financial statements, and its potential to impact future periods and the extent to which IFRS13 addresses the challenges previously associated with the measurement of fair value.
2 The Definition of Fair Value
Prior to the introduction of IFRS 13 many standards defined fair value as:“the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction”
The New definition of fair value in IFRS 13 is as follows:“...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.”
Why change the definition?
1 The new definition requires the use of an exit price
2 To provide clarity to the term “settling”
3 To establish that fair value occurs at the measurement date
3 The inevitability of the fair value measurement
Fair value is the product of market economy, the use of fair value is the objective requirement of the social and economic development.
1 Use of fair value measurement is accord with the requirement of accounting matching principle. Matching principle is usually