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IFRS 13
IFRS 13
Fair Value Measurement

In May 2011 the International Accounting Standards Board issued IFRS 13 Fair Value
Measurement. IFRS 13 defines fair value and replaces the requirement contained in
individual Standards.
Other Standards have made minor consequential amendments to IFRS 13. They include
IAS 19 Employee Benefits (issued June 2011), Annual Improvements to IFRSs 2011–2013 Cycle (issued
December 2013) and IFRS 9 Financial Instruments (issued July 2014).
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IFRS 13
CONTENTS
from paragraph
INTERNATIONAL FINANCIAL REPORTING STANDARD 13
FAIR VALUE MEASUREMENT
OBJECTIVE 1
SCOPE 5
MEASUREMENT 9
Definition of fair value 9
The asset or liability 11
The transaction 15
Market participants 22
The price 24
Application to non-financial assets 27
Application to liabilities and an entity’s own equity instruments 34
Application to financial assets and financial liabilities with offsetting
positions in market risks or counterparty credit risk 48
Fair value at initial recognition 57
Valuation techniques 61
Inputs to valuation techniques 67
Fair value hierarchy 72
DISCLOSURE 91
APPENDICES
A Defined terms
B Application guidance
C Effective date and transition
D Amendments to other IFRSs
APPROVAL BY THE BOARD OF IFRS 13 ISSUED IN MAY 2011
FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION
ILLUSTRATIVE EXAMPLES
APPENDIX
Amendments to the guidance on other IFRSs
FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION
BASIS FOR CONCLUSIONS

APPENDIX TO THE BASIS FOR CONCLUSIONS
Amendments to the Basis for Conclusions on other IFRSs
A716 姝 IFRS Foundation

IFRS 13
International Financial Reporting Standard 13 Fair Value Measurement (IFRS 13) is set out
in paragraphs 1–99 and Appendices A–D. All the paragraphs have equal authority.
Paragraphs in bold type state the main principles. Terms defined in Appendix A are in
italics the first time they appear in the IFRS. Definitions of other terms are given in the
Glossary for International Financial Reporting Standards. IFRS 13 should be read in the
context of its objective and the Basis for Conclusions, the Preface to International Financial
Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying
accounting policies in the absence of explicit guidance. [Refer: IAS 8 paragraphs 10–12]

IFRS 13
International Financial Reporting Standard 13

Fair Value Measurement
Objective
1 This IFRS:
(a) defines fair value; [Refer: paragraph 9 and Appendix A]
(b) sets out in a single IFRS a framework for measuring fair value; and
(c) requires disclosures about fair value measurements. [Refer:

paragraphs 91–99]
[Note: IFRS 13 explains how to measure fair value for financial reporting. It does not
require fair value measurements in addition to those already required or permitted by
other IFRS Standards and is not intended to establish valuation standards or affect
valuation practices outside financial reporting. Refer: Basis for Conclusions paragraphs
BC1–BC18 for background about the development of the Standard.]
2 Fair value is a market-based measurement, not an entity-specific measurement.

For some assets and liabilities, observable market transactions or market
information might be available. For other assets and liabilities, observable
market transactions and market information might not be available. However,
the objective of a fair value measurement in both cases is the same—to estimate
the price at which an orderly transaction to sell the asset [Refer: Basis for Conclusions
paragraph BC39] or to transfer the liability [Refer: Basis for Conclusions
paragraph BC40] would take place between market participants at the measurement
date under current market conditions (ie an exit price at the measurement date
from the perspective of a market participant that holds the asset or owes the
liability). [Refer: Basis for Conclusions paragraphs BC36–BC45]
3 When a price for an identical asset or liability is not observable, an entity

measures fair value using another valuation technique that maximises the use
of relevant observable inputs and minimises the use of unobservable inputs. Because
fair value is a market-based measurement, it is measured using the assumptions
that market participants would use when pricing the asset or liability, including
assumptions about risk. As a result, an entity’s intention to hold an asset or to
settle or otherwise fulfil a liability is not relevant when measuring fair value.
4 The definition of fair value focuses on assets and liabilities because they are a
primary subject of accounting measurement. In addition, this IFRS shall be
applied to an entity’s own equity instruments measured at fair value.
Scope
[Refer: Basis for Conclusions paragraphs BC19–BC26]
5 This IFRS applies when another IFRS requires or permits fair value
measurements or disclosures about fair value measurements (and
measurements, such as fair value less costs to sell, based on fair value or
disclosures about those measurements), except as specified in
paragraphs 6 and 7.

IFRS 13
6 The measurement and disclosure requirements of this IFRS do not apply to the
following:
(a) share-based payment transactions within the scope of IFRS 2 Share-based
Payment; [Refer: Basis for Conclusions paragraph BC21 and IFRS 2 paragraph 2]
(b) leasing transactions within the scope of IAS 17 Leases [Refer: Basis for
Conclusions paragraph BC22]; and
(c) measurements that have some similarities to fair value but are not fair
value, such as net realisable value in IAS 2 Inventories or value in use in
IAS 36 Impairment of Assets. [Refer: Basis for Conclusions paragraph BC20]
7 The disclosures required by this IFRS are not required for the following:
(a) plan assets measured at fair value in accordance with IAS 19 Employee
Benefits; [Refer: Basis for Conclusions paragraph BC23]
(b) retirement benefit plan investments measured at fair value in
accordance with IAS 26 Accounting and Reporting by Retirement Benefit Plans
[Refer: Basis for Conclusions paragraph BC23]; and
(c) assets for which recoverable amount is fair value less costs of disposal in
accordance with IAS 36. [Refer: Basis for Conclusions paragraphs
BC218–BC221]
8 The fair value measurement framework described in this IFRS applies to both
initial and subsequent measurement if fair value is required or permitted by
other IFRSs.
Measurement
Definition of fair value

9 This IFRS defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction [Refer:
paragraphs B43 and B44] between market participants at the measurement
date.
10 Paragraph B2 describes the overall fair value measurement approach.
The asset or liability

11 A fair value measurement is for a particular asset or liability [Refer:

paragraph B2(a)]. Therefore, when measuring fair value an entity shall take
into account the characteristics of the asset or liability if market
participants would take those characteristics into account when pricing
the asset or liability at the measurement date. Such characteristics
include, for example, the following:
(a) the condition and location of the asset; and
(b) restrictions, if any, on the sale or use of the asset. [Refer: Illustrative
Examples, examples 8 and 9]

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12 The effect on the measurement arising from a particular characteristic will

differ depending on how that characteristic would be taken into account by
market participants.
13 The asset or liability measured at fair value might be either of the following:
(a) a stand-alone asset or liability (eg a financial instrument or a

non-financial asset); or
(b) a group of assets, a group of liabilities or a group of assets and liabilities
(eg a cash-generating unit or a business).
14 Whether the asset or liability is a stand-alone asset or liability, a group of assets,

a group of liabilities or a group of assets and liabilities for recognition or
disclosure purposes depends on its unit of account [Refer: Appendix A]. The unit of
account for the asset or liability shall be determined in accordance with the IFRS
that requires or permits the fair value measurement, except as provided in this
IFRS. [Refer: paragraphs 32, 39(b), 44, 69, 80, B2(a), B4(c) and Basis for Conclusions
paragraph BC77]
The transaction
15 A fair value measurement assumes that the asset or liability is exchanged

in an orderly transaction [Refer: paragraphs 2, 9, 24, B43 and B44] between
market participants to sell the asset or transfer the liability at the
measurement date under current market conditions.
16 A fair value measurement assumes that the transaction to sell the asset or
transfer the liability takes place either: [Refer: Illustrative Examples, example 6]
(a) in the principal market for the asset or liability; or

(b) in the absence of a principal market, in the most advantageous
market for the asset or liability.
[Refer:
paragraph B2(c)
Illustrative Examples, example 6]
17 An entity need not undertake an exhaustive search of all possible markets to

identify the principal market or, in the absence of a principal market, the most
advantageous market, but it shall take into account all information that is
reasonably available. In the absence of evidence to the contrary, the market in
which the entity would normally enter into a transaction to sell the asset or to
transfer the liability is presumed to be the principal market or, in the absence of
a principal market, the most advantageous market.
18 If there is a principal market for the asset or liability, the fair value
measurement shall represent the price in that market (whether that price is
directly observable or estimated using another valuation technique) [Refer:
paragraphs 61 and 62], even if the price in a different market is potentially more
advantageous at the measurement date.
19 The entity must have access to the principal (or most advantageous) market at
the measurement date. Because different entities (and businesses within those

IFRS 13
entities) with different activities may have access to different markets, the
principal (or most advantageous) market for the same asset or liability might be
different for different entities (and businesses within those entities). Therefore,
the principal (or most advantageous) market (and thus, market participants)
shall be considered from the perspective of the entity, thereby allowing for
differences between and among entities with different activities.
20 Although an entity must be able to access the market, the entity does not need
to be able to sell the particular asset or transfer the particular liability on the
measurement date to be able to measure fair value on the basis of the price in
that market.
21 Even when there is no observable market to provide pricing information about

the sale of an asset or the transfer of a liability at the measurement date, a fair
value measurement shall assume that a transaction takes place at that date,
considered from the perspective of a market participant that holds the asset or
owes the liability. [Refer: paragraph 62] That assumed transaction establishes a
basis for estimating the price to sell the asset or to transfer the liability.
Market participants
22 An entity shall measure the fair value of an asset or a liability using the
assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best
interest. [Refer: paragraph B2(d)]
23 In developing those assumptions, an entity need not identify specific market

participants. Rather, the entity shall identify characteristics that distinguish
market participants generally, considering factors specific to all the following:
(a) the asset or liability; [Refer: paragraphs 11 and 12]
(b) the principal (or most advantageous) market for the asset or liability;
[Refer: paragraph 16] and
(c) market participants with whom the entity would enter into a
transaction in that market.
The price
24 Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction in the principal (or most
advantageous) market at the measurement date under current market
conditions (ie an exit price) regardless of whether that price is directly
observable or estimated using another valuation technique [Refer:
paragraphs 61 and 62].
25 The price in the principal (or most advantageous) market used to measure the
fair value of the asset or liability shall not be adjusted for transaction costs [Refer:
Illustrative Examples, example 6]. Transaction costs shall be accounted for in
accordance with other IFRSs. Transaction costs are not a characteristic of an
asset or a liability; rather, they are specific to a transaction and will differ
depending on how an entity enters into a transaction for the asset or liability.

IFRS 13
26 Transaction costs do not include transport costs. If location is a characteristic of

the asset (as might be the case, for example, for a commodity), the price in the
principal (or most advantageous) market shall be adjusted for the costs, if any,
that would be incurred to transport the asset from its current location to that
market. [Refer: Illustrative Examples, example 6]
Application to non-financial assets

Highest and best use for non-financial assets

[Refer:
paragraph B2(b)
Basis for Conclusions paragraphs BC68–BC73
Illustrative Examples, examples 1–5 and 9]
27 A fair value measurement of a non-financial asset takes into account a

market participant’s ability to generate economic benefits by using the
asset in its highest and best use or by selling it to another market
participant that would use the asset in its highest and best use.
28 The highest and best use of a non-financial asset takes into account the use of
the asset that is physically possible, legally permissible and financially feasible,
as follows:
(a) A use that is physically possible takes into account the physical
characteristics of the asset that market participants [Refer: paragraphs 22
and 23] would take into account when pricing the asset (eg the location
or size of a property).
(b) A use that is legally permissible takes into account any legal restrictions
on the use of the asset [Refer: Illustrative Examples, example 9] that market
participants [Refer: paragraphs 22 and 23] would take into account when
pricing the asset (eg the zoning regulations applicable to a property).
(c) A use that is financially feasible takes into account whether a use of the
asset that is physically possible and legally permissible generates
adequate income or cash flows (taking into account the costs of
converting the asset to that use) to produce an investment return that
market participants would require from an investment in that asset put
to that use.
29 Highest and best use is determined from the perspective of market participants,
even if the entity intends a different use [Refer: Basis for Conclusions
paragraph BC70]. However, an entity’s current use of a non-financial asset is
presumed to be its highest and best use unless market or other factors suggest
that a different use by market participants would maximise the value of the
asset. [Refer: Basis for Conclusions paragraph BC71]
30 To protect its competitive position, or for other reasons, an entity may intend
not to use an acquired non-financial asset actively or it may intend not to use the
asset according to its highest and best use [Refer: Basis for Conclusions
paragraph BC70]. For example, that might be the case for an acquired intangible
asset that the entity plans to use defensively by preventing others from using it.

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[Refer: Illustrative Examples, example 3] Nevertheless, the entity shall measure the
fair value of a non-financial asset assuming its highest and best use by market
participants.
Valuation premise for non-financial assets

[Refer: paragraphs B2(b) and B3 and Basis for Conclusions paragraphs BC74–BC79]
31 The highest and best use [Refer: paragraphs 27–30] of a non-financial asset
establishes the valuation premise used to measure the fair value of the asset, as
follows:
(a) The highest and best use of a non-financial asset might provide
maximum value to market participants [Refer: paragraphs 22 and 23]
through its use in combination with other assets as a group (as installed
or otherwise configured for use) or in combination with other assets and
liabilities (eg a business). [Refer: Basis for Conclusions paragraphs BC78 and
BC79 and Illustrative Examples, examples 2–5 and 9]
(i) If the highest and best use of the asset is to use the asset in
combination with other assets or with other assets and liabilities,
the fair value of the asset is the price that would be received in a
current transaction to sell the asset assuming that the asset
would be used with other assets or with other assets and
liabilities and that those assets and liabilities (ie its
complementary assets and the associated liabilities) would be
available to market participants.
(ii) Liabilities associated with the asset and with the complementary
assets include liabilities that fund working capital, but do not
include liabilities used to fund assets other than those within the
group of assets.
(iii) Assumptions about the highest and best use of a non-financial
asset shall be consistent for all the assets (for which highest and
best use is relevant) of the group of assets or the group of assets
and liabilities within which the asset would be used.
(b) The highest and best use of a non-financial asset might provide
maximum value to market participants on a stand-alone basis. If the
highest and best use of the asset is to use it on a stand-alone basis, the
fair value of the asset is the price that would be received in a current
transaction to sell the asset to market participants that would use the
asset on a stand-alone basis. [Refer: Illustrative Examples, examples 2–5 and 9]
32 The fair value measurement of a non-financial asset assumes that the asset is
sold consistently with the unit of account specified in other IFRSs (which may be
an individual asset). [Refer: paragraph 14] That is the case even when that fair
value measurement assumes that the highest and best use of the asset is to use it
in combination with other assets or with other assets and liabilities because a
fair value measurement assumes that the market participant already holds the
complementary assets and the associated liabilities. [Refer: Basis for Conclusions
paragraph BC77]

IFRS 13
33 Paragraph B3 describes the application of the valuation premise concept for

non-financial assets.
Application to liabilities and an entity’s own equity

instruments
[Refer:
Illustrative Examples, examples 10–13]
General principles
34 A fair value measurement assumes that a financial or non-financial
liability or an entity’s own equity instrument (eg equity interests issued
as consideration in a business combination) is transferred to a market
participant [Refer: paragraphs 22 and 23] at the measurement date. The
transfer of a liability or an entity’s own equity instrument assumes the
following:
(a) A liability would remain outstanding and the market participant
transferee would be required to fulfil the obligation. The liability
would not be settled with the counterparty or otherwise
extinguished on the measurement date.
(b) An entity’s own equity instrument would remain outstanding and
the market participant transferee would take on the rights and
responsibilities associated with the instrument. The instrument
would not be cancelled or otherwise extinguished on the
measurement date.
35 Even when there is no observable market to provide pricing information about

the transfer of a liability or an entity’s own equity instrument (eg because
contractual or other legal restrictions prevent the transfer of such items [Refer:
paragraphs 45 and 46 and Basis for Conclusions paragraphs BC99 and BC100]), there
might be an observable market for such items if they are held by other parties as
assets (eg a corporate bond or a call option on an entity’s shares).
36 In all cases, an entity shall maximise the use of relevant observable inputs and
minimise the use of unobservable inputs to meet the objective of a fair value
measurement, which is to estimate the price at which an orderly transaction to
transfer the liability or equity instrument would take place between market
participants at the measurement date under current market conditions. [Refer:
paragraphs 2 and 61]
Liabilities and equity instruments held by other parties as assets

[Refer:
paragraph 88
Basis for Conclusions paragraph BC40
Illustrative Examples, examples 10 and 12]
37 When a quoted price for the transfer of an identical or a similar liability

or entity’s own equity instrument is not available and the identical item
is held by another party as an asset, an entity shall measure the fair value
of the liability or equity instrument from the perspective of a market

IFRS 13
participant that holds the identical item as an asset at the measurement

date. [Refer: Basis for Conclusions paragraphs BC86–BC89]
38 In such cases, an entity shall measure the fair value of the liability or equity
instrument as follows:
(a) using the quoted price [Refer: paragraphs 76 and 77 and Illustrative Examples,
example 12] in an active market for the identical item held by another party
as an asset, if that price is available.
(b) if that price is not available, using other observable inputs, such as the
quoted price in a market that is not active for the identical item held by
another party as an asset. [Refer: paragraph 81]
(c) if the observable prices in (a) and (b) are not available, using another
valuation technique, such as:
(i) an income approach [Refer: paragraph B10] (eg a present value

technique [Refer: Illustrative Examples, examples 10, 11 and 13] that
takes into account the future cash flows that a market
participant would expect to receive from holding the liability or
equity instrument as an asset; see paragraphs B10 and B11).
(ii) a market approach [Refer: paragraphs B5–B7] (eg using quoted prices
for similar liabilities or equity instruments held by other parties
as assets; see paragraphs B5–B7 [Refer: Illustrative Examples,
example 12]).
39 An entity shall adjust the quoted price [Refer: paragraph 79(c) and 83(b)] of a
liability or an entity’s own equity instrument held by another party as an asset
only if there are factors specific to the asset that are not applicable to the fair
value measurement of the liability or equity instrument. An entity shall ensure
that the price of the asset does not reflect the effect of a restriction preventing
the sale of that asset [Refer: Illustrative Examples, example 8]. Some factors that may
indicate that the quoted price of the asset should be adjusted include the
following:
(a) The quoted price for the asset relates to a similar (but not identical)
liability or equity instrument held by another party as an asset. [Refer:
paragraph 82(a) and (b)] For example, the liability or equity instrument
may have a particular characteristic (eg the credit quality of the issuer)
that is different from that reflected in the fair value of the similar
liability or equity instrument held as an asset.
(b) The unit of account for the asset is not the same as for the liability or
equity instrument. For example, for liabilities, in some cases the price
for an asset reflects a combined price for a package comprising both the
amounts due from the issuer and a third-party credit enhancement.
[Refer: paragraph 44] If the unit of account for the liability is not for the
combined package, the objective is to measure the fair value of the
issuer’s liability, not the fair value of the combined package. Thus, in
such cases, the entity would adjust the observed price for the asset to
exclude the effect of the third-party credit enhancement. [Refer: Basis for
Conclusions paragraphs BC96–BC98]

IFRS 13
Liabilities and equity instruments not held by other parties as assets

[Refer:
paragraphs B31–B33
40 When a quoted price for the transfer of an identical or a similar liability

or entity’s own equity instrument is not available and the identical item
is not held by another party as an asset, an entity shall measure the fair
value of the liability or equity instrument using a valuation technique
from the perspective of a market participant [Refer: paragraphs 22 and 23]
that owes the liability or has issued the claim on equity [Refer: Basis for
Conclusions paragraph BC90].
41 For example, when applying a present value technique an entity might take into
account either of the following [Refer: paragraphs B12–B30 and Illustrative Examples,
example 11]:
(a) the future cash outflows that a market participant [Refer: paragraphs 22
and 23] would expect to incur in fulfilling the obligation, including the
compensation that a market participant would require for taking on the
obligation (see paragraphs B31–B33 [Refer: Basis for Conclusions
paragraphs BC90 and BC91]).
(b) the amount that a market participant would receive to enter into or
issue an identical liability or equity instrument, using the assumptions
that market participants would use when pricing the identical item
(eg having the same credit characteristics) in the principal (or most
advantageous) market [Refer: paragraph 16] for issuing a liability or an
equity instrument with the same contractual terms.
Non-performance risk
[Refer:
42 The fair value of a liability reflects the effect of non-performance risk.

Non-performance risk includes, but may not be limited to, an entity’s own
credit risk (as defined in IFRS 7 Financial Instruments: Disclosures).
Non-performance risk is assumed to be the same before and after the
transfer of the liability.
43 When measuring the fair value of a liability, an entity shall take into account
the effect of its credit risk (credit standing) and any other factors that might
influence the likelihood that the obligation will or will not be fulfilled. That
effect may differ depending on the liability, for example:
(a) whether the liability is an obligation to deliver cash (a financial liability)
or an obligation to deliver goods or services (a non-financial liability).
(b) the terms of credit enhancements related to the liability, if any. [Refer:
paragraph 39(b)]
44 The fair value of a liability reflects the effect of non-performance risk on the
basis of its unit of account [Refer: paragraph 14]. The issuer of a liability issued

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with an inseparable third-party credit enhancement [Refer: paragraph 39(b)] that

is accounted for separately from the liability shall not include the effect of the
credit enhancement (eg a third-party guarantee of debt) in the fair value
measurement of the liability. If the credit enhancement is accounted for
separately from the liability, the issuer would take into account its own credit
standing and not that of the third party guarantor when measuring the fair
value of the liability. [Refer: Basis for Conclusions paragraphs BC96–BC98]
Restriction preventing the transfer of a liability or an entity’s own

equity instrument
[Refer:
Basis for Conclusions paragraphs BC99 and BC100
45 When measuring the fair value of a liability or an entity’s own equity

instrument, an entity shall not include a separate input or an adjustment to
other inputs relating to the existence of a restriction that prevents the transfer of
the item. The effect of a restriction that prevents the transfer of a liability or an
entity’s own equity instrument is either implicitly or explicitly included in the
other inputs to the fair value measurement.
46 For example, at the transaction date, both the creditor and the obligor accepted
the transaction price for the liability with full knowledge that the obligation
includes a restriction that prevents its transfer. As a result of the restriction
being included in the transaction price, a separate input or an adjustment to an
existing input is not required at the transaction date to reflect the effect of the
restriction on transfer. Similarly, a separate input or an adjustment to an
existing input is not required at subsequent measurement dates to reflect the
effect of the restriction on transfer.
Financial liability with a demand feature

[Refer: Basis for Conclusions paragraphs BC26(a) and BC101–BCZ103]
47 The fair value of a financial liability with a demand feature (eg a demand
deposit) is not less than the amount payable on demand, discounted from the
first date that the amount could be required to be paid.E1
E1 [IFRIC Update—May 2008: Deposits on returnable containers The IFRIC was asked to provide guidance on
the accounting for the obligation to refund deposits on returnable containers. In some industries, entities
that distribute their products in returnable containers collect a deposit for each container delivered and
have an obligation to refund this deposit when containers are returned by the customer. The issue was
whether the obligation should be accounted for in accordance with IAS 39 Financial Instruments:
Recognition and Measurement. The IFRIC noted that paragraph 11 of IAS 32 defines a financial instrument
as ‘any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument
of another entity.’ Following delivery of the containers to its customers, the seller has an obligation only to
refund the deposit for any returned containers. In circumstances in which the containers are derecognised
as part of the sale transaction, the obligation is an exchange of cash (the deposit) for the containers
(non-financial assets). Whether that exchange transaction occurs is at the option of the customer. Because
the transaction involves the exchange of a non-financial item, it does not meet the definition of a financial
instrument in accordance with IAS 32. In contrast, when the containers are not derecognised as part of the
sale transaction, the customer’s only asset is its right to the refund. In such circumstances, the obligation
meets the definition of a financial instrument in accordance with IAS 32 and is therefore within the scope of
IAS 39. In particular, paragraph 49 of IAS 39 [paragraph 49 of IAS 39 is now paragraph 47 of IFRS 13 Fair
Value Measurement] states that ‘the fair value of a financial liability with a demand feature (eg a demand
deposit) is not less than the amount payable on demand, discounted from the first date that the amount
continued...

IFRS 13
...continued
could be required to be paid.’ The IFRIC concluded that divergence in this area was unlikely to be significant
and therefore decided not to add this issue to its agenda.]
Application to financial assets and financial liabilities

with offsetting positions in market risks or counterparty
credit risk
48 An entity that holds a group of financial assets and financial liabilities is

exposed to market risks (as defined in IFRS 7) and to the credit risk (as defined in
IFRS 7) of each of the counterparties. If the entity manages that group of
financial assets and financial liabilities on the basis of its net exposure [Refer:
paragraph 49] to either market risks or credit risk, the entity is permitted to apply
an exception to this IFRS for measuring fair value. That exception permits an
entity to measure the fair value of a group of financial assets and financial
liabilities on the basis of the price that would be received to sell a net long
position (ie an asset) for a particular risk exposure or paid to transfer a net short
position (ie a liability) for a particular risk exposure in an orderly transaction
[Refer: paragraphs B43 and B44] between market participants [Refer: paragraphs 22
and 23] at the measurement date under current market conditions. Accordingly,
an entity shall measure the fair value of the group of financial assets and
financial liabilities consistently with how market participants would price the
net risk exposure at the measurement date. [Refer: paragraphs 53–56]
49 An entity is permitted to use the exception in paragraph 48 only if the entity

does all the following: [Refer: Basis for Conclusions paragraphs BC120 and BC121]
(a) manages the group of financial assets and financial liabilities on the
basis of the entity’s net exposure to a particular market risk (or risks) or
to the credit risk of a particular counterparty in accordance with the
entity’s documented risk management or investment strategy;
(b) provides information on that basis about the group of financial assets
and financial liabilities to the entity’s key management personnel, as
defined in IAS 24 Related Party Disclosures; and
(c) is required or has elected to measure those financial assets and financial
liabilities at fair value in the statement of financial position at the end of
each reporting period.
50 The exception in paragraph 48 does not pertain to financial statement

presentation. In some cases the basis for the presentation of financial
instruments in the statement of financial position differs from the basis for the
measurement of financial instruments, for example, if an IFRS does not require
or permit financial instruments to be presented on a net basis [Refer: IAS 32
paragraphs 42–50]. In such cases an entity may need to allocate the portfolio-level
adjustments (see paragraphs 53–56) to the individual assets or liabilities that
make up the group of financial assets and financial liabilities managed on the
basis of the entity’s net risk exposure. An entity shall perform such allocations
on a reasonable and consistent basis using a methodology appropriate in the
circumstances.

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51 An entity shall make an accounting policy decision in accordance with IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors [Refer: IAS 8 paragraphs
7–29] to use the exception in paragraph 48. An entity that uses the exception
shall apply that accounting policy, including its policy for allocating bid-ask
adjustments (see paragraphs 53–55) and credit adjustments (see paragraph 56), if
applicable, consistently from period to period for a particular portfolio. [Refer:
paragraph 96]
52 The exception in paragraph 48 applies only to financial assets, financial

liabilities and other contracts [Refer: Basis for Conclusions BC119A and BC119B]
within the scope of IFRS 9 Financial Instruments (or IAS 39 Financial Instruments:
Recognition and Measurement, if IFRS 9 has not yet been adopted). [Refer: IFRS 9
paragraphs 2.1–2.7 and B2.1–B2.6] The references to financial assets and financial
liabilities in paragraphs 48–51 and 53–56 should be read as applying to all
contracts within the scope of, and accounted for in accordance with, IFRS 9 (or
IAS 39, if IFRS 9 has not yet been adopted), regardless of whether they meet the
definitions of financial assets [Refer: IAS 32 paragraph 11 (definition of a financial
asset)] or financial liabilities Refer: IAS 32 paragraph 11 (definition of a financial
liability)] in IAS 32 Financial Instruments: Presentation.
Exposure to market risks

[Refer: Basis for Conclusions paragraphs BC122 and BC123]
53 When using the exception in paragraph 48 to measure the fair value of a group
of financial assets and financial liabilities managed on the basis of the entity’s
net exposure to a particular market risk (or risks), the entity shall apply the price
within the bid-ask spread that is most representative of fair value in the
circumstances to the entity’s net exposure to those market risks (see paragraphs
70 and 71).
54 When using the exception in paragraph 48, an entity shall ensure that the
market risk (or risks) to which the entity is exposed within that group of
financial assets and financial liabilities is substantially the same. For example,
an entity would not combine the interest rate risk associated with a financial
asset with the commodity price risk associated with a financial liability because
doing so would not mitigate the entity’s exposure to interest rate risk or
commodity price risk. When using the exception in paragraph 48, any basis risk
resulting from the market risk parameters not being identical shall be taken
into account in the fair value measurement of the financial assets and financial
liabilities within the group.
55 Similarly, the duration of the entity’s exposure to a particular market risk (or
risks) arising from the financial assets and financial liabilities shall be
substantially the same. For example, an entity that uses a 12-month futures
contract against the cash flows associated with 12 months’ worth of interest rate
risk exposure on a five-year financial instrument within a group made up of only
those financial assets and financial liabilities measures the fair value of the
exposure to 12-month interest rate risk on a net basis and the remaining interest
rate risk exposure (ie years 2–5) on a gross basis.

IFRS 13
Exposure to the credit risk of a particular counterparty

56 When using the exception in paragraph 48 to measure the fair value of a group
of financial assets and financial liabilities entered into with a particular
counterparty, the entity shall include the effect of the entity’s net exposure to
the credit risk of that counterparty or the counterparty’s net exposure to the
credit risk of the entity in the fair value measurement when market participants
[Refer: paragraphs 22 and 23] would take into account any existing arrangements
that mitigate credit risk exposure in the event of default (eg a master netting
agreement [Refer: IAS 32 paragraph 50] with the counterparty or an agreement
that requires the exchange of collateral on the basis of each party’s net exposure
to the credit risk of the other party). The fair value measurement shall reflect
market participants’ expectations about the likelihood that such an
arrangement would be legally enforceable in the event of default.
Fair value at initial recognition

[Refer:
paragraph B4
57 When an asset is acquired or a liability is assumed in an exchange transaction

for that asset or liability, the transaction price is the price paid to acquire the
asset or received to assume the liability (an entry price). In contrast, the fair value
of the asset or liability is the price that would be received to sell the asset or paid
to transfer the liability (an exit price). Entities do not necessarily sell assets at
the prices paid to acquire them. Similarly, entities do not necessarily transfer
liabilities at the prices received to assume them.
58 In many cases the transaction price will equal the fair value (eg that might be
the case when on the transaction date the transaction to buy an asset takes place
in the market in which the asset would be sold).
59 When determining whether fair value at initial recognition equals the

transaction price, an entity shall take into account factors specific to the
transaction and to the asset or liability. Paragraph B4 describes situations in
which the transaction price might not represent the fair value of an asset or a
liability at initial recognition.
60 If another IFRS requires or permits an entity to measure an asset or a liability

initially at fair value and the transaction price differs from fair value, the entity
shall recognise the resulting gain or loss in profit or loss unless that IFRS
specifies otherwise. [Refer: Basis for Conclusions paragraph BC137]
Valuation techniques
[Refer:
paragraphs B2(d) and B5–B30
Illustrative Examples, examples 4, 5 and 17]
61 An entity shall use valuation techniques that are appropriate in the

circumstances and for which sufficient data are available to measure fair

IFRS 13
value, maximising the use of relevant observable inputs and minimising

the use of unobservable inputs. [Refer: paragraphs 67 and 74]
62 The objective of using a valuation technique is to estimate the price at which an

orderly transaction to sell the asset or to transfer the liability would take place
between market participants at the measurement date under current market
conditions. [Refer: paragraph 2] Three widely used valuation techniques are the
market approach, the cost approach and the income approach. The main aspects
of those approaches are summarised in paragraphs B5–B11. An entity shall use
valuation techniques consistent with one or more of those approaches to
measure fair value.
63 In some cases a single valuation technique will be appropriate (eg when valuing
an asset or a liability using quoted prices in an active market for identical assets
or liabilities). In other cases, multiple valuation techniques [Refer: Illustrative
Examples, examples 4 and 5 and Basis for Conclusions paragraph BC142] will be
appropriate (eg that might be the case when valuing a cash-generating unit). If
multiple valuation techniques are used to measure fair value, the results (ie
respective indications of fair value) shall be evaluated considering the
reasonableness of the range of values indicated by those results. A fair value
measurement is the point within that range that is most representative of fair
value in the circumstances. [Refer: paragraph B40]
64 If the transaction price is fair value at initial recognition [Refer: paragraphs 57–60
and B4] and a valuation technique that uses unobservable inputs will be used to
measure fair value in subsequent periods, the valuation technique shall be
calibrated so that at initial recognition the result of the valuation technique
equals the transaction price. Calibration ensures that the valuation technique
reflects current market conditions, and it helps an entity to determine whether
an adjustment [Refer: paragraphs 69 and B39 and Basis for Conclusions paragraphs
BC143–BC146] to the valuation technique is necessary (eg there might be a
characteristic of the asset or liability [Refer: paragraph 11] that is not captured by
the valuation technique). After initial recognition, when measuring fair value
using a valuation technique or techniques that use unobservable inputs, an
entity shall ensure that those valuation techniques reflect observable market
data (eg the price for a similar asset or liability) at the measurement date.
65 Valuation techniques used to measure fair value shall be applied consistently.

[Refer: paragraph B40 and Basis for Conclusions paragraph BC147] However, a change
in a valuation technique or its application (eg a change in its weighting when
multiple valuation techniques are used or a change in an adjustment applied to
a valuation technique) is appropriate if the change results in a measurement
that is equally or more representative of fair value in the circumstances. That
might be the case if, for example, any of the following events take place:
(a) new markets develop;
(b) new information becomes available;

(c) information previously used is no longer available;
(d) valuation techniques improve; or
(e) market conditions change.

IFRS 13
66 Revisions resulting from a change in the valuation technique or its application

shall be accounted for as a change in accounting estimate in accordance with
IAS 8 [Refer: IAS 8 paragraphs 32–38 and Basis for Conclusions paragraph BC148].
However, the disclosures in IAS 8 for a change in accounting estimate [Refer:
IAS 8] are not required for revisions resulting from a change in a valuation
technique or its application.
Inputs to valuation techniques
General principles
67 Valuation techniques used to measure fair value shall maximise the use
of relevant observable inputs and minimise the use of unobservable
inputs.
[Refer:
paragraphs 61 and 62(d)
Basis for Conclusions paragraph BC151]
68 Examples of markets in which inputs might be observable for some assets and
liabilities (eg financial instruments) include exchange markets, dealer markets,
brokered markets and principal-to-principal markets (see paragraph B34).
69 An entity shall select inputs that are consistent with the characteristics of the
asset or liability that market participants would take into account in a
transaction for the asset or liability (see paragraphs 11 and 12). In some cases
those characteristics result in the application of an adjustment, [Refer: Basis for
Conclusions paragraphs BC143–BC146 and BC152–BC159] such as a premium or
discount (eg a control premium or non-controlling interest discount). However,
a fair value measurement shall not incorporate a premium or discount that is
inconsistent with the unit of account in the IFRS that requires or permits the
fair value measurement (see paragraphs 13 and 14). Premiums or discounts that
reflect size as a characteristic of the entity’s holding (specifically, a blockage
factor that adjusts the quoted price of an asset or a liability because the market’s
normal daily trading volume is not sufficient to absorb the quantity held by the
entity, as described in paragraph 80) rather than as a characteristic of the asset
or liability (eg a control premium when measuring the fair value of a controlling
interest) are not permitted in a fair value measurement. [Refer: Basis for
Conclusions paragraphs BC156–BC157] In all cases, if there is a quoted price in an
active market (ie a Level 1 input) for an asset or a liability, an entity shall use that
price without adjustment when measuring fair value, except as specified in
paragraph 79. [Refer: Basis for Conclusion paragraph BC168]
Inputs based on bid and ask prices

[Refer: paragraph 53 and Basis for Conclusions paragraphs BC160–BC165]
70 If an asset or a liability measured at fair value has a bid price and an ask price
(eg an input from a dealer market), the price within the bid-ask spread that is
most representative of fair value in the circumstances shall be used to measure
fair value regardless of where the input is categorised within the fair value
hierarchy (ie Level 1, 2 or 3; see paragraphs 72–90). The use of bid prices for asset
positions and ask prices for liability positions is permitted, but is not required.
[Refer: Basis for Conclusion paragraph BC163]

IFRS 13
71 This IFRS does not preclude the use of mid-market pricing or other pricing
conventions that are used by market participants as a practical expedient for fair
value measurements within a bid-ask spread.
Fair value hierarchy

[Refer:
paragraphs B2(d), B35 and B36
Basis for Conclusions paragraphs BC166–BC182]
72 To increase consistency and comparability in fair value measurements and

related disclosures, this IFRS establishes a fair value hierarchy that categorises
into three levels (see paragraphs 76–90) the inputs to valuation techniques used
to measure fair value. The fair value hierarchy gives the highest priority to
quoted prices (unadjusted) in active markets for identical assets or liabilities
(Level 1 inputs) [Refer: paragraphs 76–80 and Basis for Conclusions paragraphs
BC168–BC170] and the lowest priority to unobservable inputs (Level 3 inputs).E2
[Refer: paragraphs 86–90, B36 and Basis for Conclusions paragraphs BC172–BC175]
E2 [IFRIC Update—January 2015: IFRS 13 Fair Value Measurement—the fair value hierarchy when third-party
consensus prices are used The Interpretations Committee received a request to clarify under what
circumstances prices that are provided by third parties would qualify as Level 1 in the fair value hierarchy
in accordance with IFRS 13 Fair Value Measurement. The submitter noted that there are divergent views on
the level within the hierarchy in which fair value measurements based on prices received from third parties
should be classified. The Interpretations Committee noted that when assets or liabilities are measured on
the basis of prices provided by third parties, the classification of those measurements within the fair value
hierarchy will depend on the evaluation of the inputs used by the third party to derive those prices, instead
of on the pricing methodology used. In other words, the fair value hierarchy prioritises the inputs to
valuation techniques, not the valuation techniques used to measure fair value. In accordance with IFRS 13,
only unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access
at the measurement date qualify as Level 1 inputs. Consequently, the Interpretations Committee noted that
a fair value measurement that is based on prices provided by third parties may only be categorised within
Level 1 of the fair value hierarchy if the measurement relies solely on unadjusted quoted prices in an active
market for an identical instrument that the entity can access at the measurement date. The Interpretations
Committee also observed that the guidance in IFRS 13 relating to the classification of measurements within
the fair value hierarchy is sufficient to draw an appropriate conclusion on the issue submitted. On the basis
of the analysis performed, the Interpretations Committee determined that neither an Interpretation nor an
amendment to a Standard was necessary. Consequently, the Interpretations Committee decided not to add
this issue to its agenda.]
73 In some cases, the inputs used to measure the fair value of an asset or a liability
might be categorised within different levels of the fair value hierarchy. In those
cases, the fair value measurement is categorised in its entirety in the same level
of the fair value hierarchy as the lowest level input that is significant to the
entire measurement. Assessing the significance of a particular input to the
entire measurement requires judgement, taking into account factors specific to
the asset or liability. Adjustments to arrive at measurements based on fair value,
such as costs to sell when measuring fair value less costs to sell, shall not be
taken into account when determining the level of the fair value hierarchy
within which a fair value measurement is categorised.
74 The availability of relevant inputs and their relative subjectivity might affect the
selection of appropriate valuation techniques (see paragraph 61). However, the
fair value hierarchy prioritises the inputs to valuation techniques, not the
valuation techniques used to measure fair value. For example, a fair value
measurement developed using a present value technique [Refer: paragraphs
B12–B30] might be categorised within Level 2 [Refer: paragraphs 81–85, B35 and

IFRS 13
Basis for Conclusions paragraph BC171] or Level 3, depending on the inputs that are
significant to the entire measurement and the level of the fair value hierarchy
within which those inputs are categorised.
75 If an observable input requires an adjustment using an unobservable input and

that adjustment results in a significantly higher or lower fair value
measurement, the resulting measurement would be categorised within Level 3
of the fair value hierarchy. For example, if a market participant would take into
account the effect of a restriction on the sale of an asset [Refer: paragraph 11(b) and
Illustrative Examples, example 8] when estimating the price for the asset [Refer:
paragraph 12], an entity would adjust the quoted price to reflect the effect of that
restriction. If that quoted price is a Level 2 input and the adjustment [Refer:
paragraph B39] is an unobservable input that is significant to the entire
measurement, the measurement would be categorised within Level 3 of the fair
value hierarchy.
Level 1 inputs
[Refer:
76 Level 1 inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities that the entity can access at the measurement date.
77 A quoted price in an active market [Refer: Basis for Conclusions paragraph BC169]
provides the most reliable evidence of fair value and shall be used without
adjustment to measure fair value whenever available, except as specified in
paragraph 79. [Refer: Basis for Conclusions paragraph BC168]
78 A Level 1 input will be available for many financial assets and financial
liabilities, some of which might be exchanged in multiple active markets (eg on
different exchanges). Therefore, the emphasis within Level 1 is on determining
both of the following:
(a) the principal market [Refer: Illustrative Examples, example 6] for the asset or
liability or, in the absence of a principal market, the most advantageous
market for the asset or liability [Refer: paragraph 16]; and
(b) whether the entity can enter into a transaction for the asset or liability at
the price in that market at the measurement date. [Refer: paragraphs 19
and 20]
79 An entity shall not make an adjustment to a Level 1 input except in the

following circumstances:
(a) when an entity holds a large number of similar (but not identical) assets
or liabilities (eg debt securities) that are measured at fair value and a
quoted price in an active market is available but not readily accessible
for each of those assets or liabilities individually (ie given the large
number of similar assets or liabilities held by the entity, it would be
difficult to obtain pricing information for each individual asset or
liability at the measurement date). In that case, as a practical expedient,
an entity may measure fair value using an alternative pricing method
that does not rely exclusively on quoted prices (eg matrix pricing).

IFRS 13
However, the use of an alternative pricing method results in a fair value

measurement categorised within a lower level of the fair value hierarchy.
[Refer: paragraph B7 and Basis for Conclusions paragraph BC170]
(b) when a quoted price in an active market does not represent fair value at
the measurement date. That might be the case if, for example,
significant events (such as transactions in a principal-to-principal
market, trades in a brokered market or announcements) take place after
the close of a market but before the measurement date. An entity shall
establish and consistently apply a policy for identifying those events that
might affect fair value measurements. However, if the quoted price is
adjusted for new information, the adjustment results in a fair value
measurement categorised within a lower level of the fair value hierarchy.
[Refer: paragraphs 73 and 75]
(c) when measuring the fair value of a liability or an entity’s own equity
instrument using the quoted price for the identical item traded as an
asset in an active market and that price needs to be adjusted for factors
specific to the item or the asset (see paragraph 39). If no adjustment to
the quoted price of the asset is required, the result is a fair value
measurement categorised within Level 1 of the fair value hierarchy.
However, any adjustment to the quoted price of the asset results in a fair
value measurement categorised within a lower level of the fair value
hierarchy.
[Refer: paragraph 75]
80 If an entity holds a position in a single asset or liability (including a position

comprising a large number of identical assets or liabilities, such as a holding of
financial instruments) and the asset or liability is traded in an active market, the
fair value of the asset or liability shall be measured within Level 1 as the product
of the quoted price for the individual asset or liability and the quantity held by
the entity. That is the case even if a market’s normal daily trading volume is not
sufficient to absorb the quantity held and placing orders to sell the position in a
single transaction might affect the quoted price. [Refer: paragraph 69 and Basis for
Conclusions paragraph BC155]
Level 2 inputs
81 Level 2 inputs are inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly.
[Refer: Basis for Conclusions paragraph BC171]
82 If the asset or liability has a specified (contractual) term, a Level 2 input must be
observable for substantially the full term of the asset or liability. Level 2 inputs
include the following: [Refer: paragraph B35]
(a) quoted prices for similar assets or liabilities in active markets.
(b) quoted prices for identical or similar assets or liabilities in markets that
are not active.
(c) inputs other than quoted prices that are observable for the asset or
liability, for example:

IFRS 13
(i) interest rates and yield curves observable at commonly quoted

intervals;
(ii) implied volatilities; and
(iii) credit spreads.

(d) market-corroborated inputs. [Refer: Basis for Conclusions paragraph BC171]
83 Adjustments to Level 2 inputs will vary depending on factors specific to the asset
or liability [Refer: paragraph B35]. Those factors include the following:
(a) the condition or location of the asset; [Refer: paragraph 11(a)]

(b) the extent to which inputs relate to items that are comparable to the
asset or liability (including those factors described in paragraph 39); and
[Refer: paragraph B38 and Illustrative Examples, example 4]
(c) the volume or level of activity in the markets within which the inputs
are observed. [Refer: paragraphs B37 and B38]
84 An adjustment to a Level 2 input that is significant to the entire measurement

might result in a fair value measurement categorised within Level 3 of the fair
value hierarchy if the adjustment uses significant unobservable inputs.
85 Paragraph B35 describes the use of Level 2 inputs for particular assets and
liabilities.
Level 3 inputs
86 Level 3 inputs are unobservable inputs for the asset or liability.
[Refer: paragraph B36]
87 Unobservable inputs shall be used to measure fair value to the extent that
relevant observable inputs are not available, [Refer: paragraph 67] thereby
allowing for situations in which there is little, if any, market activity for the
asset or liability at the measurement date. However, the fair value measurement
objective [Refer: paragraph 2] remains the same, ie an exit price at the
measurement date from the perspective of a market participant [Refer:
paragraphs 22 and 23] that holds the asset or owes the liability. Therefore,
unobservable inputs shall reflect the assumptions that market participants
would use when pricing the asset or liability, including assumptions about risk.
88 Assumptions about risk include the risk inherent in a particular valuation

technique used to measure fair value (such as a pricing model) and the risk
inherent in the inputs to the valuation technique. A measurement that does not
include an adjustment for risk would not represent a fair value measurement if
market participants would include one when pricing the asset or liability. For
example, it might be necessary to include a risk adjustment when there is
significant measurement uncertainty (eg when there has been a significant
decrease in the volume or level of activity when compared with normal market
activity for the asset or liability, or similar assets or liabilities, and the entity has
determined that the transaction price or quoted price does not represent fair
value, as described in paragraphs B37–B47). [Refer: Basis for Conclusions paragraphs
BC143–BC146, BC149 and BC150]

IFRS 13
89 An entity shall develop unobservable inputs using the best information available
in the circumstances, which might include the entity’s own data. In developing
unobservable inputs, an entity may begin with its own data, but it shall adjust
those data if reasonably available information indicates that other market
participants [Refer: paragraphs 22 and 23] would use different data or there is
something particular to the entity that is not available to other market
participants (eg an entity-specific synergy). [Refer: Basis for Conclusions
paragraph BC174] An entity need not undertake exhaustive efforts to obtain
information about market participant assumptions. [Refer: Basis for Conclusions
paragraph BC175] However, an entity shall take into account all information
about market participant assumptions that is reasonably available.
Unobservable inputs developed in the manner described above are considered
market participant assumptions and meet the objective of a fair value
measurement.
90 Paragraph B36 describes the use of Level 3 inputs for particular assets and
liabilities.
Disclosure
91 An entity shall disclose information that helps users of its financial

statements assess both of the following: [Refer: Basis for Conclusions
paragraph BC185]
(a) for assets and liabilities that are measured at fair value on a
recurring or non-recurring basis [Refer: Basis for Conclusions
paragraph BC186] in the statement of financial position after initial
recognition, the valuation techniques [Refer: paragraphs 62 and B5–B11]
and inputs [Refer: paragraph 67] used to develop those measurements.
(b) for recurring fair value measurements using significant

unobservable inputs (Level 3), [Refer: paragraph 86] the effect of the
measurements on profit or loss or other comprehensive income
for the period.
92 To meet the objectives in paragraph 91, an entity shall consider all the
following: [Refer: Illustrative Examples, example 17]
(a) the level of detail necessary to satisfy the disclosure requirements;
(b) how much emphasis to place on each of the various requirements;
(c) how much aggregation or disaggregation to undertake; [Refer:

paragraph 94] and
(d) whether users of financial statements need additional information to
evaluate the quantitative information disclosed.
If the disclosures provided in accordance with this IFRS and other IFRSs are
insufficient to meet the objectives in paragraph 91, an entity shall disclose
additional information necessary to meet those objectives.
93 To meet the objectives in paragraph 91, an entity shall disclose, at a minimum,

the following information for each class of assets and liabilities (see

IFRS 13
paragraph 94 for information on determining appropriate classes of assets and

liabilities) measured at fair value (including measurements based on fair value
within the scope of this IFRS) in the statement of financial position after initial
recognition:
(a) for recurring and non-recurring [Refer: Basis for Conclusions
paragraph BC186] fair value measurements, the fair value measurement at
the end of the reporting period, and for non-recurring fair value
measurements, the reasons for the measurement. [Refer: Illustrative
Examples, example 15] Recurring fair value measurements of assets or
liabilities are those that other IFRSs require or permit in the statement of
financial position at the end of each reporting period. Non-recurring fair
value measurements of assets or liabilities are those that other IFRSs
require or permit in the statement of financial position in particular
circumstances (eg when an entity measures an asset held for sale at fair
value less costs to sell in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations because the asset’s fair value less costs to
sell is lower than its carrying amount). [Refer: IFRS 5 paragraph 15]
(b) for recurring and non-recurring fair value measurements, the level of the
fair value hierarchy within which the fair value measurements are
categorised in their entirety (Level 1, 2 or 3). [Refer: Illustrative Examples,
example 15]
(c) for assets and liabilities held at the end of the reporting period that are
measured at fair value on a recurring basis, the amounts of any transfers
between Level 1 and Level 2 of the fair value hierarchy, the reasons for
those transfers and the entity’s policy for determining when transfers
between levels are deemed to have occurred (see paragraph 95).
Transfers into each level shall be disclosed and discussed separately from
transfers out of each level. [Refer: Basis for Conclusions paragraphs BC211
and BC212]
(d) for recurring and non-recurring fair value measurements categorised

within Level 2 and Level 3 of the fair value hierarchy, a description of the
valuation technique(s) and the inputs used in the fair value
measurement. If there has been a change in valuation technique [Refer:
paragraph 65] (eg changing from a market approach [Refer: paragraphs
B5–B7] to an income approach [Refer: paragraphs B10 and B11] or the use of
an additional valuation technique), the entity shall disclose that change
and the reason(s) for making it. For fair value measurements categorised
within Level 3 of the fair value hierarchy, an entity shall provide
quantitative information about the significant unobservable inputs used
in the fair value measurement. [Refer: Basis for Conclusions paragraphs
BC188–BC193 and Illustrative Examples, example 17] An entity is not required
to create quantitative information to comply with this disclosure
requirement if quantitative unobservable inputs are not developed by
the entity when measuring fair value (eg when an entity uses prices from
prior transactions or third-party pricing information without
adjustment). [Refer: Basis for Conclusions paragraph BC195] However, when
providing this disclosure an entity cannot ignore quantitative

IFRS 13
unobservable inputs that are significant to the fair value measurement

and are reasonably available to the entity. [Refer: paragraph B40 and
(e) for recurring fair value measurements categorised within Level 3 of the
fair value hierarchy, a reconciliation from the opening balances to the
closing balances, disclosing separately changes during the period
attributable to the following: [Refer: Illustrative Examples, example 16]
(i) total gains or losses for the period recognised in profit or loss,
and the line item(s) in profit or loss in which those gains or losses
are recognised.
(ii) total gains or losses for the period recognised in other

comprehensive income, and the line item(s) in other
comprehensive income in which those gains or losses are
recognised.
(iii) purchases, sales, issues and settlements (each of those types of
changes disclosed separately).
(iv) the amounts of any transfers into or out of Level 3 of the fair
value hierarchy, the reasons for those transfers and the entity’s
policy for determining when transfers between levels are deemed
to have occurred (see paragraph 95). Transfers into Level 3 shall
be disclosed and discussed separately from transfers out of
Level 3.
(f) for recurring fair value measurements categorised within Level 3 of the
fair value hierarchy, the amount of the total gains or losses for the period
in (e)(i) included in profit or loss that is attributable to the change in
unrealised gains or losses [Refer: Basis for Conclusions paragraph BC198]
relating to those assets and liabilities held at the end of the reporting
period, and the line item(s) in profit or loss in which those unrealised
gains or losses are recognised. [Refer: Illustrative Examples, example 16]
(g) for recurring and non-recurring fair value measurements categorised
within Level 3 of the fair value hierarchy, a description of the valuation
processes used by the entity (including, for example, how an entity
decides its valuation policies and procedures and analyses changes in fair
value measurements from period to period). [Refer: Illustrative Examples,
example 18 and Basis for Conclusions paragraphs BC200 and BC201]
(h) for recurring fair value measurements categorised within Level 3 of the
fair value hierarchy:
(i) for all such measurements, a narrative description of the
sensitivity of the fair value measurement to changes in
unobservable inputs if a change in those inputs to a different
amount might result in a significantly higher or lower fair value
measurement. If there are interrelationships between those
inputs and other unobservable inputs used in the fair value
measurement, an entity shall also provide a description of those
interrelationships and of how they might magnify or mitigate

IFRS 13
the effect of changes in the unobservable inputs on the fair value

measurement. To comply with that disclosure requirement, the
narrative description of the sensitivity to changes in
unobservable inputs shall include, at a minimum, the
unobservable inputs disclosed when complying with (d). [Refer:
Basis for Conclusions paragraphs BC202–BC207 and Illustrative
Examples, example 19]
(ii) for financial assets and financial liabilities, if changing one or
more of the unobservable inputs to reflect reasonably possible
alternative assumptions would change fair value significantly, an
entity shall state that fact and disclose the effect of those
changes. The entity shall disclose how the effect of a change to
reflect a reasonably possible alternative assumption was
calculated. For that purpose, significance shall be judged with
respect to profit or loss, and total assets or total liabilities, or,
when changes in fair value are recognised in other
comprehensive income, total equity. [Refer: Basis for Conclusions
paragraphs BC208–BC210]
(i) for recurring and non-recurring fair value measurements, if the highest
and best use of a non-financial asset differs from its current use, an entity
shall disclose that fact and why the non-financial asset is being used in a
manner that differs from its highest and best use. [Refer: paragraph 29 and
Basis for Conclusions paragraphs BC73, BC213 and BC214]
94 An entity shall determine appropriate classes of assets and liabilities on the basis
of the following:
(a) the nature, characteristics [Refer: paragraph 11] and risks of the asset or
liability; and
(b) the level of the fair value hierarchy within which the fair value
measurement is categorised. [Refer: paragraphs 72 and 73]
The number of classes may need to be greater for fair value measurements
categorised within Level 3 of the fair value hierarchy [Refer: Basis for Conclusions
paragraph BC193] because those measurements have a greater degree of
uncertainty and subjectivity. Determining appropriate classes of assets and
liabilities for which disclosures about fair value measurements should be
provided requires judgement. A class of assets and liabilities will often require
greater disaggregation than the line items presented in the statement of
financial position. However, an entity shall provide information sufficient to
permit reconciliation to the line items presented in the statement of financial
position. If another IFRS specifies the class for an asset or a liability, an entity
may use that class in providing the disclosures required in this IFRS if that class
meets the requirements in this paragraph.
95 An entity shall disclose and consistently follow its policy for determining when
transfers between levels of the fair value hierarchy are deemed to have occurred
in accordance with paragraph 93(c) and (e)(iv). The policy about the timing of

IFRS 13
recognising transfers shall be the same for transfers into the levels as for
transfers out of the levels. Examples of policies for determining the timing of
transfers include the following:
(a) the date of the event or change in circumstances that caused the
transfer.
(b) the beginning of the reporting period.

(c) the end of the reporting period.
96 If an entity makes an accounting policy decision to use the exception in

paragraph 48, it shall disclose that fact.
97 For each class of assets and liabilities not measured at fair value in the statement
of financial position but for which the fair value is disclosed, [Refer: IFRS 7
paragraph 25, IAS 16 paragraph 79(d) and IAS 40 paragraph 79(e)] an entity shall
disclose the information required by paragraph 93(b), (d) and (i) [Refer: Basis for
Conclusions paragraphs BC215–BC217]. However, an entity is not required to
provide the quantitative disclosures about significant unobservable inputs used
in fair value measurements categorised within Level 3 of the fair value hierarchy
required by paragraph 93(d). For such assets and liabilities, an entity does not
need to provide the other disclosures required by this IFRS.
98 For a liability measured at fair value and issued with an inseparable third-party
credit enhancement, an issuer shall disclose the existence of that credit
enhancement and whether it is reflected in the fair value measurement of the
liability. [Refer: paragraphs 39(b) and 44]
99 An entity shall present the quantitative disclosures required by this IFRS in a

tabular format unless another format is more appropriate. [Refer: paragraphs
15–17 and Illustrative Examples, examples 15 and 17]

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Appendix A
Defined terms
This appendix is an integral part of the IFRS.
active market A market in which transactions for the asset or liability take
place with sufficient frequency and volume to provide pricing
information on an ongoing basis.
cost approach A valuation technique that reflects the amount that would be
required currently to replace the service capacity of an asset
(often referred to as current replacement cost). [Refer:
paragraphs B8 and B9]
entry price The price paid to acquire an asset or received to assume a liability
in an exchange transaction.
exit price The price that would be received to sell an asset or paid to
transfer a liability. [Refer: Basis for Conclusions paragraphs
BC36–BC45]
expected cash flow The probability-weighted average (ie mean of the distribution) of
possible future cash flows.
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.[Refer: Basis for Conclusions
paragraphs BC27–BC35]
highest and best use The use of a non-financial asset by market participants that
would maximise the value of the asset or the group of assets and
liabilities (eg a business) within which the asset would be used.
[Refer: paragraphs 27–30, Basis for Conclusions paragraphs BC68–BC73
and Illustrative Examples, examples 1–5]
income approach Valuation techniques that convert future amounts (eg cash flows
or income and expenses) to a single current (ie discounted)
amount. The fair value measurement is determined on the basis
of the value indicated by current market expectations about
those future amounts. [Refer: paragraphs B10 and B11]
inputs The assumptions that market participants would use when
pricing the asset or liability, including assumptions about risk,
such as the following:
(a) the risk inherent in a particular valuation technique used

to measure fair value (such as a pricing model); and
(b) the risk inherent in the inputs to the valuation technique.
Inputs may be observable or unobservable.

Level 1 inputs Quoted prices (unadjusted) in active markets for identical assets
or liabilities that the entity can access at the measurement date.
[Refer: paragraphs 76–80 and Basis for Conclusions paragraphs
BC168–BC170]

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Level 2 inputs Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
[Refer: paragraphs 81–85, B35 and Basis for Conclusions
paragraph BC171]
Level 3 inputs Unobservable inputs for the asset or liability. [Refer: paragraphs
86–90, B36 and Basis for Conclusions paragraphs BC172–BC175]
market approach A valuation technique that uses prices and other relevant
information generated by market transactions involving
identical or comparable (ie similar) assets, liabilities or a group of
assets and liabilities, such as a business. [Refer: paragraphs B5–B7]
market-corroborated Inputs that are derived principally from or corroborated by
inputs observable market data by correlation or other means. [Refer:
market participant Buyers and sellers in the principal (or most advantageous) market
for the asset or liability that have all of the following
characteristics: [Refer: paragraphs 22 and 23 and Basis for Conclusions
paragraphs BC55 and BC56]
(a) They are independent [Refer: Basis for Conclusions

paragraph BC57] of each other, ie they are not related
parties as defined in IAS 24, although the price in a
related party transaction may be used as an input to a fair
value measurement if the entity has evidence that the
transaction was entered into at market terms.
(b) They are knowledgeable, [Refer: Basis for Conclusions

paragraph BC58] having a reasonable understanding about
the asset or liability and the transaction using all
available information, including information that might
be obtained through due diligence efforts that are usual
and customary.
(c) They are able to enter into a transaction for the asset or
liability. [Refer: Basis for Conclusions paragraph BC56]
(d) They are willing [Refer: Basis for Conclusions paragraphs

BC56 and BC59] to enter into a transaction for the asset or
liability, ie they are motivated but not forced or otherwise
compelled to do so.
most advantageous The market that maximises the amount that would be received to
market sell the asset or minimises the amount that would be paid to
transfer the liability, after taking into account transaction costs
and transport costs. [Refer: Basis for Conclusions paragraphs
BC48–BC54 and Illustrative Examples, example 6]
non-performance risk The risk that an entity will not fulfil an obligation.
Non-performance risk includes, but may not be limited to, the
entity’s own credit risk. [Refer: paragraphs 42–44 and Basis for
Conclusions paragraphs BC92–BC95]

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observable inputs Inputs that are developed using market data, such as publicly
available information about actual events or transactions, and
that reflect the assumptions that market participants would use
when pricing the asset or liability.
orderly transaction A transaction that assumes exposure to the market for a period
before the measurement date to allow for marketing activities
that are usual and customary for transactions involving such
assets or liabilities; it is not a forced transaction (eg a forced
liquidation or distress sale). [Refer: paragraph B43 and Basis for
Conclusions paragraph BC181]
principal market The market with the greatest volume and level of activity for the
asset or liability. [Refer: Illustrative Examples, example 6]
risk premium Compensation sought by risk-averse market participants for
bearing the uncertainty inherent in the cash flows of an asset or a
liability. Also referred to as a ‘risk adjustment’. [Refer:
paragraphs B16 and B44]
transaction costs The costs to sell an asset or transfer a liability in the principal (or
most advantageous) market for the asset or liability that are
directly attributable to the disposal of the asset or the transfer of
the liability and meet both of the following criteria:
(a) They result directly from and are essential to that

transaction.
(b) They would not have been incurred by the entity had the
decision to sell the asset or transfer the liability not been
made (similar to costs to sell, as defined in IFRS 5).
transport costs The costs that would be incurred to transport an asset from its
current location to its principal (or most advantageous) market.
unit of account The level at which an asset or a liability is aggregated or
disaggregated in an IFRS for recognition purposes. [Refer:
paragraph B4(c) and Basis for Conclusions paragraph BC77]
unobservable inputs Inputs for which market data are not available and that are
developed using the best information available about the
assumptions that market participants would use when pricing
the asset or liability. [Refer: paragraphs 87 and 89]

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Appendix B
Application guidance
This appendix is an integral part of the IFRS. It describes the application of paragraphs 1–99 and
has the same authority as the other parts of the IFRS.
B1 The judgements applied in different valuation situations may be different. This
appendix describes the judgements that might apply when an entity measures
fair value in different valuation situations.
The fair value measurement approach
B2 The objective of a fair value measurement [Refer: paragraph 2] is to estimate the

price at which an orderly transaction to sell the asset or to transfer the liability
would take place between market participants [Refer: paragraphs 22 and 23] at the
measurement date under current market conditions. A fair value measurement
requires an entity to determine all the following:
(a) the particular asset or liability that is the subject of the measurement
(consistently with its unit of account [Refer: paragraph 11 and Basis for
Conclusions paragraphs BC46 and BC47]).
(b) for a non-financial asset, the valuation premise [Refer: Basis for
Conclusions paragraphs BC74–BC79] that is appropriate for the
measurement (consistently with its highest and best use [Refer:
paragraphs 27–32 and Basis for Conclusions paragraphs BC68–BC73]).
(c) the principal (or most advantageous) market for the asset or liability.
[Refer: paragraph 16 and Basis for Conclusion paragraphs BC48–BC53]
(d) the valuation technique(s) [Refer: paragraph 61 and Basis for Conclusions
paragraphs BC139–BC142] appropriate for the measurement, considering
the availability of data with which to develop inputs [Refer: paragraphs
67–69 and Basis for Conclusions paragraph BC151] that represent the
assumptions that market participants would use when pricing the asset
or liability [Refer: paragraphs 22, 23 and Basis for Conclusions paragraph BC55]
and the level of the fair value hierarchy [Refer: paragraphs 72–74 and Basis
for Conclusions paragraph BC166] within which the inputs are categorised.
Valuation premise for non-financial assets (paragraphs 31–33)

[Refer:
B3 When measuring the fair value of a non-financial asset used in combination

with other assets as a group (as installed or otherwise configured for use) or in
combination with other assets and liabilities [Refer: paragraph 31(a)] (eg a
business), the effect of the valuation premise depends on the circumstances. For
example:
(a) the fair value of the asset might be the same whether the asset is used on
a stand-alone basis or in combination with other assets or with other
assets and liabilities [Refer: paragraph 31(a)]. That might be the case if the

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asset is a business that market participants [Refer: paragraphs 22 and 23]

would continue to operate. In that case, the transaction would involve
valuing the business in its entirety. The use of the assets as a group in an
ongoing business would generate synergies that would be available to
market participants (ie market participant synergies that, therefore,
should affect the fair value of the asset on either a stand-alone basis
[Refer: paragraph 31(b)] or in combination with other assets or with other
assets and liabilities [Refer: paragraph 31(a)]).
(b) an asset’s use in combination with other assets or with other assets and
liabilities might be incorporated into the fair value measurement
through adjustments to the value of the asset used on a stand-alone
basis. [Refer: paragraph 31(b)] That might be the case if the asset is a
machine and the fair value measurement is determined using an
observed price [Refer: paragraph 67] for a similar machine (not installed or
otherwise configured for use), adjusted for transport [Refer: paragraph 26]
and installation costs so that the fair value measurement reflects the
current condition and location of the machine (installed and configured
for use).
(c) an asset’s use in combination with other assets or with other assets and
liabilities [Refer: paragraph 31(a)] might be incorporated into the fair value
measurement through the market participant assumptions [Refer:
paragraph 22] used to measure the fair value of the asset. For example, if
the asset is work in progress inventory that is unique and market
participants would convert the inventory into finished goods, the fair
value of the inventory would assume that market participants have
acquired or would acquire [Refer: paragraph 31(a)(i)] any specialised
machinery necessary to convert the inventory into finished goods.
(d) an asset’s use in combination with other assets or with other assets and
liabilities [Refer: paragraph 31(a)] might be incorporated into the
valuation technique [Refer: paragraph 61] used to measure the fair value of
the asset. That might be the case when using the multi-period excess
earnings method [Refer: paragraph B11(c)] to measure the fair value of an
intangible asset because that valuation technique specifically takes into
account the contribution of any complementary assets [Refer: paragraph
31(a)(i)] and the associated liabilities [Refer: paragraph 31(a)(ii)] in the
group in which such an intangible asset would be used.
(e) in more limited situations, when an entity uses an asset within a group
of assets [Refer: paragraph 31(a)], the entity might measure the asset at an
amount that approximates its fair value when allocating the fair value of
the asset group to the individual assets of the group. That might be the
case if the valuation involves real property and the fair value of improved
property (ie an asset group) is allocated to its component assets (such as
land and improvements).

IFRS 13
Fair value at initial recognition (paragraphs 57–60)

B4 When determining whether fair value at initial recognition equals the

transaction price, an entity shall take into account factors specific to the
transaction and to the asset or liability. For example, the transaction price
might not represent the fair value of an asset or a liability at initial recognition
if any of the following conditions exist:
(a) The transaction is between related parties, although the price in a
related party transaction may be used as an input into a fair value
measurement if the entity has evidence that the transaction was entered
into at market terms.
(b) The transaction takes place under duress or the seller is forced to accept
the price in the transaction. For example, that might be the case if the
seller is experiencing financial difficulty.
(c) The unit of account [Refer: paragraph 14] represented by the transaction
price is different from the unit of account for the asset or liability
measured at fair value. For example, that might be the case if the asset
or liability measured at fair value is only one of the elements in the
transaction (eg in a business combination), the transaction includes
unstated rights and privileges that are measured separately in
accordance with another IFRS, or the transaction price includes
transaction costs.
(d) The market in which the transaction takes place is different from the
principal market [Refer: paragraph 16(a)] (or most advantageous market
[Refer: paragraph 16(b)]). For example, those markets might be different if
the entity is a dealer that enters into transactions with customers in the
retail market, but the principal (or most advantageous) market for the
exit transaction is with other dealers in the dealer market. [Refer:
paragraph B34(b)]
[Refer: Illustrative Examples, example 7]
Valuation techniques (paragraphs 61–66)

Market approach
[Refer:
paragraph 38(c)(ii)
B5 The market approach uses prices and other relevant information generated by
market transactions involving identical or comparable (ie similar) assets,
liabilities or a group of assets and liabilities, such as a business. [Refer:
paragraph 82(a) and 82(b)]
B6 For example, valuation techniques consistent with the market approach often
use market multiples derived from a set of comparables. Multiples might be in
ranges with a different multiple for each comparable. The selection of the

IFRS 13
appropriate multiple within the range [Refer: paragraph 63] requires judgement,
considering qualitative and quantitative factors specific to the measurement.
B7 Valuation techniques consistent with the market approach include matrix

pricing. [Refer: paragraph 79(a) and Basis for Conclusions paragraph BC170] Matrix
pricing is a mathematical technique used principally to value some types of
financial instruments, such as debt securities, without relying exclusively on
quoted prices for the specific securities, but rather relying on the securities’
relationship to other benchmark quoted securities.
Cost approach
[Refer:
B8 The cost approach reflects the amount that would be required currently to
replace the service capacity of an asset (often referred to as current replacement
cost).
B9 From the perspective of a market participant [Refer: paragraphs 22 and 23] seller,
the price that would be received for the asset is based on the cost to a market
participant buyer to acquire or construct a substitute asset of comparable utility,
adjusted for obsolescence. That is because a market participant buyer would not
pay more for an asset than the amount for which it could replace the service
capacity of that asset. Obsolescence encompasses physical deterioration,
functional (technological) obsolescence and economic (external) obsolescence
and is broader than depreciation for financial reporting purposes (an allocation
of historical cost) or tax purposes (using specified service lives). In many cases
the current replacement cost method is used to measure the fair value of
tangible assets that are used in combination with other assets or with other
assets and liabilities. [Refer: paragraph 31(a)]
Income approach
[Refer:
paragraph 38(c)(i)
Basis for Conclusions paragraph BC140
Illustrative Examples, examples 4, 5, 10, 11, 13 and 14]
B10 The income approach converts future amounts (eg cash flows or income and
expenses) to a single current (ie discounted) amount. When the income
approach is used, the fair value measurement reflects current market
expectations about those future amounts. [Refer: paragraph 22]
B11 Those valuation techniques include, for example, the following:

(a) present value techniques (see paragraphs B12–B30);
(b) option pricing models, such as the Black-Scholes-Merton formula or a

binomial model (ie a lattice model), that incorporate present value
techniques and reflect both the time value and the intrinsic value of an
option; and
(c) the multi-period excess earnings method, which is used to measure the
fair value of some intangible assets. [Refer: paragraph B3(d)]

IFRS 13
Present value techniques

[Refer:
B12 Paragraphs B13–B30 describe the use of present value techniques to measure fair
value. Those paragraphs focus on a discount rate adjustment technique and an
expected cash flow (expected present value) technique. Those paragraphs neither
prescribe the use of a single specific present value technique nor limit the use of
present value techniques to measure fair value to the techniques discussed. The
present value technique used to measure fair value will depend on facts and
circumstances specific to the asset or liability being measured (eg whether prices
for comparable assets or liabilities can be observed in the market) and the
availability of sufficient data.
The components of a present value measurement

B13 Present value (ie an application of the income approach) is a tool used to link
future amounts (eg cash flows or values) to a present amount using a discount
rate. A fair value measurement of an asset or a liability using a present value
technique captures all the following elements from the perspective of market
participants [Refer: paragraphs 22 and 23] at the measurement date:
(a) an estimate of future cash flows for the asset or liability being measured.
(b) expectations about possible variations in the amount and timing of the
cash flows representing the uncertainty inherent in the cash flows.
(c) the time value of money, represented by the rate on risk-free monetary
assets that have maturity dates or durations that coincide with the
period covered by the cash flows and pose neither uncertainty in timing
nor risk of default to the holder (ie a risk-free interest rate).
(d) the price for bearing the uncertainty inherent in the cash flows (ie a risk
premium). [Refer: paragraphs 88, B31(b), B33, Basis for Conclusions paragraphs
BC90, BC91, BC143, BC146, BC149, BC150 and Illustrative Examples, examples 10,
11 and 13]
(e) other factors that market participants would take into account in the
circumstances.
(f) for a liability, the non-performance risk relating to that liability,
including the entity’s (ie the obligor’s) own credit risk.
General principles
B14 Present value techniques differ in how they capture the elements in
paragraph B13. However, all the following general principles govern the
application of any present value technique used to measure fair value:
(a) Cash flows and discount rates should reflect assumptions that market
participants would use when pricing the asset or liability.
(b) Cash flows and discount rates should take into account only the factors
attributable to the asset or liability being measured.

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(c) To avoid double-counting or omitting the effects of risk factors, discount

rates should reflect assumptions that are consistent with those inherent
in the cash flows. For example, a discount rate that reflects the
uncertainty in expectations about future defaults [Refer: paragraph 43] is
appropriate if using contractual cash flows of a loan (ie a discount rate
adjustment technique). That same rate should not be used if using
expected (ie probability-weighted) cash flows (ie an expected present
value technique) because the expected cash flows already reflect
assumptions about the uncertainty in future defaults; instead, a discount
rate that is commensurate with the risk inherent in the expected cash
flows should be used.
(d) Assumptions about cash flows and discount rates should be internally
consistent. For example, nominal cash flows, which include the effect of
inflation, should be discounted at a rate that includes the effect of
inflation. The nominal risk-free interest rate includes the effect of
inflation. Real cash flows, which exclude the effect of inflation, should
be discounted at a rate that excludes the effect of inflation. Similarly,
after-tax cash flows should be discounted using an after-tax discount
rate. Pre-tax cash flows should be discounted at a rate consistent with
those cash flows.
(e) Discount rates should be consistent with the underlying economic

factors of the currency in which the cash flows are denominated.
Risk and uncertainty

[Refer:
paragraphs 88, B31(b) and B33
Basis for Conclusions paragraphs BC90, BC91, BC143, BC146, BC149 and BC150
B15 A fair value measurement using present value techniques is made under
conditions of uncertainty because the cash flows used are estimates rather than
known amounts. In many cases both the amount and timing of the cash flows
are uncertain. Even contractually fixed amounts, such as the payments on a
loan, are uncertain if there is risk of default.
B16 Market participants [Refer: paragraphs 22 and 23] generally seek compensation (ie
a risk premium) for bearing the uncertainty inherent in the cash flows of an
asset or a liability. A fair value measurement should include a risk premium
reflecting the amount that market participants would demand as compensation
for the uncertainty inherent in the cash flows. Otherwise, the measurement
would not faithfully represent fair value. In some cases determining the
appropriate risk premium might be difficult. However, the degree of difficulty
alone is not a sufficient reason to exclude a risk premium.
B17 Present value techniques differ in how they adjust for risk and in the type of
cash flows they use. For example:
(a) The discount rate adjustment technique (see paragraphs B18–B22) uses a
risk-adjusted discount rate and contractual, promised or most likely cash
flows. [Refer: Illustrative Examples, example 14]

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(b) Method 1 of the expected present value technique (see paragraph B25)
uses risk-adjusted expected cash flows and a risk-free rate.
(c) Method 2 of the expected present value technique (see paragraph B26)
uses expected cash flows that are not risk-adjusted and a discount rate
adjusted to include the risk premium that market participants require.
That rate is different from the rate used in the discount rate adjustment
technique. [Refer: Illustrative Examples, examples 10 and 11]
Discount rate adjustment technique

B18 The discount rate adjustment technique uses a single set of cash flows from the
range of possible estimated amounts, whether contractual or promised (as is the
case for a bond) or most likely cash flows. In all cases, those cash flows are
conditional upon the occurrence of specified events (eg contractual or promised
cash flows for a bond are conditional on the event of no default by the debtor).
The discount rate used in the discount rate adjustment technique is derived
from observed rates of return for comparable assets or liabilities that are traded
in the market. Accordingly, the contractual, promised or most likely cash flows
are discounted at an observed or estimated market rate for such conditional
cash flows (ie a market rate of return).
B19 The discount rate adjustment technique requires an analysis of market data for
comparable assets or liabilities. Comparability is established by considering the
nature of the cash flows (eg whether the cash flows are contractual or
non-contractual and are likely to respond similarly to changes in economic
conditions), as well as other factors (eg credit standing, collateral, duration,
restrictive covenants and liquidity). Alternatively, if a single comparable asset or
liability does not fairly reflect the risk inherent in the cash flows of the asset or
liability being measured, it may be possible to derive a discount rate using data
for several comparable assets or liabilities in conjunction with the risk-free yield
curve (ie using a ‘build-up’ approach).
B20 To illustrate a build-up approach, assume that Asset A is a contractual right to

receive CU8001 in one year (ie there is no timing uncertainty). There is an
established market for comparable assets, and information about those assets,
including price information, is available. Of those comparable assets:
(a) Asset B is a contractual right to receive CU1,200 in one year and has a
market price of CU1,083. Thus, the implied annual rate of return (ie a
one-year market rate of return) is 10.8 per cent [(CU1,200/CU1,083) – 1].
(b) Asset C is a contractual right to receive CU700 in two years and has a
market price of CU566. Thus, the implied annual rate of return (ie a
two-year market rate of return) is 11.2 per cent [(CU700/CU566)^0.5 – 1].
(c) All three assets are comparable with respect to risk (ie dispersion of
possible pay-offs and credit).
B21 On the basis of the timing of the contractual payments to be received for Asset A
relative to the timing for Asset B and Asset C (ie one year for Asset B versus two
1 In this IFRS monetary amounts are denominated in ‘currency units (CU)’.

IFRS 13
years for Asset C), Asset B is deemed more comparable to Asset A. Using the
contractual payment to be received for Asset A (CU800) and the one-year market
rate derived from Asset B (10.8 per cent), the fair value of Asset A is CU722
(CU800/1.108). Alternatively, in the absence of available market information for
Asset B, the one-year market rate could be derived from Asset C using the
build-up approach. In that case the two-year market rate indicated by Asset C
(11.2 per cent) would be adjusted to a one-year market rate using the term
structure of the risk-free yield curve. Additional information and analysis might
be required to determine whether the risk premiums for one-year and two-year
assets are the same. If it is determined that the risk premiums for one-year and
two-year assets are not the same, the two-year market rate of return would be
further adjusted for that effect.
B22 When the discount rate adjustment technique is applied to fixed receipts or
payments, the adjustment for risk inherent in the cash flows of the asset or
liability being measured is included in the discount rate. In some applications
of the discount rate adjustment technique to cash flows that are not fixed
receipts or payments, an adjustment to the cash flows may be necessary to
achieve comparability with the observed asset or liability from which the
discount rate is derived.
Expected present value technique

B23 The expected present value technique uses as a starting point a set of cash flows
that represents the probability-weighted average of all possible future cash flows
(ie the expected cash flows). The resulting estimate is identical to expected
value, which, in statistical terms, is the weighted average of a discrete random
variable’s possible values with the respective probabilities as the weights.
Because all possible cash flows are probability-weighted, the resulting expected
cash flow is not conditional upon the occurrence of any specified event (unlike
the cash flows used in the discount rate adjustment technique).
B24 In making an investment decision, risk-averse market participants [Refer:

paragraphs 22 and 23] would take into account the risk that the actual cash flows
may differ from the expected cash flows. Portfolio theory distinguishes between
two types of risk:
(a) unsystematic (diversifiable) risk, which is the risk specific to a particular
asset or liability.
(b) systematic (non-diversifiable) risk, which is the common risk shared by
an asset or a liability with the other items in a diversified portfolio.
Portfolio theory holds that in a market in equilibrium, market participants will

be compensated only for bearing the systematic risk inherent in the cash flows.
(In markets that are inefficient or out of equilibrium, other forms of return or
compensation might be available.)
B25 Method 1 of the expected present value technique adjusts the expected cash
flows of an asset for systematic (ie market) risk by subtracting a cash risk
premium (ie risk-adjusted expected cash flows). Those risk-adjusted expected
cash flows represent a certainty-equivalent cash flow, which is discounted at a

IFRS 13
risk-free interest rate. A certainty-equivalent cash flow refers to an expected cash

flow (as defined), adjusted for risk so that a market participant [Refer:
paragraphs 22 and 23] is indifferent to trading a certain cash flow for an expected
cash flow. For example, if a market participant was willing to trade an expected
cash flow of CU1,200 for a certain cash flow of CU1,000, the CU1,000 is the
certainty equivalent of the CU1,200 (ie the CU200 would represent the cash risk
premium). In that case the market participant would be indifferent as to the
asset held.
B26 In contrast, Method 2 of the expected present value technique adjusts for
systematic (ie market) risk by applying a risk premium to the risk-free interest
rate. Accordingly, the expected cash flows are discounted at a rate that
corresponds to an expected rate associated with probability-weighted cash flows
(ie an expected rate of return). Models used for pricing risky assets, such as the
capital asset pricing model, can be used to estimate the expected rate of return.
Because the discount rate used in the discount rate adjustment technique is a
rate of return relating to conditional cash flows, it is likely to be higher than the
discount rate used in Method 2 of the expected present value technique, which
is an expected rate of return relating to expected or probability-weighted cash
flows.
B27 To illustrate Methods 1 and 2, assume that an asset has expected cash flows of
CU780 in one year determined on the basis of the possible cash flows and
probabilities shown below. The applicable risk-free interest rate for cash flows
with a one-year horizon is 5 per cent, and the systematic risk premium for an
asset with the same risk profile is 3 per cent.
Possible cash flows Probability Probability-weighted

cash flows
CU500 15% CU75
CU800 60% CU480
CU900 25% CU225
Expected cash flows CU780
B28 In this simple illustration, the expected cash flows (CU780) represent the
probability-weighted average of the three possible outcomes. In more realistic
situations, there could be many possible outcomes. However, to apply the
expected present value technique, it is not always necessary to take into account
distributions of all possible cash flows using complex models and techniques.
Rather, it might be possible to develop a limited number of discrete scenarios
and probabilities that capture the array of possible cash flows. For example, an
entity might use realised cash flows for some relevant past period, adjusted for
changes in circumstances occurring subsequently (eg changes in external
factors, including economic or market conditions, industry trends and
competition as well as changes in internal factors affecting the entity more
specifically), taking into account the assumptions of market participants.
B29 In theory, the present value (ie the fair value) of the asset’s cash flows is the same
whether determined using Method 1 or Method 2, as follows:

IFRS 13
(a) Using Method 1, the expected cash flows are adjusted for systematic
(ie market) risk. In the absence of market data directly indicating the
amount of the risk adjustment, such adjustment could be derived from
an asset pricing model using the concept of certainty equivalents. For
example, the risk adjustment (ie the cash risk premium of CU22) could
be determined using the systematic risk premium of 3 per cent (CU780 –
[CU780 × (1.05/1.08)]), which results in risk-adjusted expected cash flows
of CU758 (CU780 – CU22). The CU758 is the certainty equivalent of
CU780 and is discounted at the risk-free interest rate (5 per cent). The
present value (ie the fair value) of the asset is CU722 (CU758/1.05).
(b) Using Method 2, the expected cash flows are not adjusted for systematic
(ie market) risk. Rather, the adjustment for that risk is included in the
discount rate. Thus, the expected cash flows are discounted at an
expected rate of return of 8 per cent (ie the 5 per cent risk-free interest
rate plus the 3 per cent systematic risk premium). The present value
(ie the fair value) of the asset is CU722 (CU780/1.08).
B30 When using an expected present value technique to measure fair value, either
Method 1 or Method 2 could be used. The selection of Method 1 or Method 2 will
depend on facts and circumstances specific to the asset or liability being
measured, the extent to which sufficient data are available and the judgements
applied.
Applying present value techniques to liabilities and an entity’s

own equity instruments not held by other parties as assets
(paragraphs 40 and 41)
B31 When using a present value technique to measure the fair value of a liability
that is not held by another party as an asset (eg a decommissioning liability
[Refer: Illustrative Examples, example 11]), an entity shall, among other things,
estimate the future cash outflows that market participants [Refer: paragraphs 22
and 23] would expect to incur in fulfilling the obligation. Those future cash
outflows shall include market participants’ expectations [Refer: paragraph 89]
about the costs of fulfilling the obligation and the compensation that a market
participant would require for taking on the obligation. Such compensation
includes the return that a market participant would require for the following:
(a) undertaking the activity (ie the value of fulfilling the obligation; eg by
using resources that could be used for other activities); and
(b) assuming the risk associated with the obligation (ie a risk premium
[Refer: paragraph B8 and Basis for Conclusions paragraphs BC90, BC91, BC143,
BC146, BC149, BC150 and Illustrative Examples, example 11] that reflects the
risk that the actual cash outflows might differ from the expected cash
outflows; see paragraph B33).
B32 For example, a non-financial liability does not contain a contractual rate of
return and there is no observable market yield for that liability. In some cases
the components of the return that market participants would require will be
indistinguishable from one another (eg when using the price a third party
contractor would charge on a fixed fee basis). In other cases an entity needs to

IFRS 13
estimate those components separately (eg when using the price a third party
contractor would charge on a cost plus basis because the contractor in that case
would not bear the risk of future changes in costs).
B33 An entity can include a risk premium in the fair value measurement of a
liability or an entity’s own equity instrument that is not held by another party as
an asset in one of the following ways: [Refer: Basis for Conclusions paragraph BC91]
(a) by adjusting the cash flows (ie as an increase in the amount of cash
outflows); or
(b) by adjusting the rate used to discount the future cash flows to their
present values (ie as a reduction in the discount rate).
An entity shall ensure that it does not double-count or omit adjustments for risk.
For example, if the estimated cash flows are increased to take into account the
compensation for assuming the risk associated with the obligation, the discount
rate should not be adjusted to reflect that risk. [Refer: paragraph B14]
Inputs to valuation techniques (paragraphs 67–71)
B34 Examples of markets in which inputs might be observable for some assets and
liabilities (eg financial instruments) include the following: [Refer: paragraph 68]
(a) Exchange markets. In an exchange market, closing prices are both readily
available and generally representative of fair value. An example of such
a market is the London Stock Exchange.
(b) Dealer markets. In a dealer market, dealers stand ready to trade (either buy
or sell for their own account), thereby providing liquidity by using their
capital to hold an inventory of the items for which they make a market.
Typically bid and ask prices [Refer: paragraphs 70 and 71] (representing the
price at which the dealer is willing to buy and the price at which the
dealer is willing to sell, respectively) are more readily available than
closing prices. Over-the-counter markets (for which prices are publicly
reported) are dealer markets. Dealer markets also exist for some other
assets and liabilities, including some financial instruments, commodities
and physical assets (eg used equipment). [Refer: Basis for Conclusions
paragraph BC165]
(c) Brokered markets. In a brokered market, brokers attempt to match buyers
with sellers but do not stand ready to trade for their own account. In
other words, brokers do not use their own capital to hold an inventory of
the items for which they make a market. The broker knows the prices
bid and asked by the respective parties, but each party is typically
unaware of another party’s price requirements. Prices of completed
transactions are sometimes available. Brokered markets include
electronic communication networks, in which buy and sell orders are
matched, and commercial and residential real estate markets.
(d) Principal-to-principal markets. [Refer: Basis for Conclusions paragraph BC165] In

a principal-to-principal market, transactions, both originations and
resales, are negotiated independently with no intermediary. Little
information about those transactions may be made available publicly.

IFRS 13
Fair value hierarchy (paragraphs 72–90)
Level 2 inputs (paragraphs 81–85)

B35 Examples of Level 2 inputs for particular assets and liabilities include the
following:
(a) Receive-fixed, pay-variable interest rate swap based on the London Interbank Offered
Rate (LIBOR) swap rate. A Level 2 input would be the LIBOR swap rate if that
rate is observable at commonly quoted intervals for substantially the full
term of the swap. [Refer: paragraph 82]
(b) Receive-fixed, pay-variable interest rate swap based on a yield curve denominated in
a foreign currency. A Level 2 input would be the swap rate based on a yield
curve denominated in a foreign currency that is observable at commonly
quoted intervals for substantially the full term of the swap [Refer:
paragraph 82]. That would be the case if the term of the swap is 10 years
and that rate is observable at commonly quoted intervals for 9 years,
provided that any reasonable extrapolation of the yield curve for year 10
would not be significant to the fair value measurement of the swap in its
entirety.
(c) Receive-fixed, pay-variable interest rate swap based on a specific bank’s prime rate.
A Level 2 input would be the bank’s prime rate derived through
extrapolation if the extrapolated values are corroborated by observable
market data [Refer: paragraph 82(d)], for example, by correlation with an
interest rate that is observable over substantially the full term of the
swap.
(d) Three-year option on exchange-traded shares. A Level 2 input would be the

implied volatility for the shares derived through extrapolation to year 3
if both of the following conditions exist:
(i) Prices for one-year and two-year options on the shares are
observable.
(ii) The extrapolated implied volatility of a three-year option is

corroborated by observable market data for substantially the full
term of the option. [Refer: paragraph 82(d)]
In that case the implied volatility could be derived by extrapolating from
the implied volatility of the one-year and two-year options on the shares
and corroborated by the implied volatility for three-year options on
comparable entities’ shares, provided that correlation with the one-year
and two-year implied volatilities is established.
(e) Licensing arrangement. For a licensing arrangement that is acquired in a

business combination and was recently negotiated with an unrelated
party by the acquired entity (the party to the licensing arrangement), a
Level 2 input would be the royalty rate in the contract with the unrelated
party at inception of the arrangement.

IFRS 13
(f) Finished goods inventory at a retail outlet. For finished goods inventory that
is acquired in a business combination, a Level 2 input would be either a
price to customers in a retail market or a price to retailers in a wholesale
market, adjusted for differences between the condition and location of
the inventory item [Refer: paragraph 83(a)] and the comparable (ie similar)
inventory items [Refer: paragraph 83(b)] so that the fair value
measurement reflects the price that would be received in a transaction to
sell the inventory to another retailer that would complete the requisite
selling efforts. Conceptually, the fair value measurement will be the
same, whether adjustments are made to a retail price (downward) or to a
wholesale price (upward). Generally, the price that requires the least
amount of subjective adjustments should be used for the fair value
measurement.
(g) Building held and used. A Level 2 input would be the price per square
metre for the building (a valuation multiple) derived from observable
market data, eg multiples derived from prices in observed transactions
involving comparable (ie similar) buildings in similar locations. [Refer:
paragraph 83]
(h) Cash-generating unit. A Level 2 input would be a valuation multiple (eg a
multiple of earnings or revenue or a similar performance measure)
derived from observable market data, eg multiples derived from prices in
observed transactions involving comparable (ie similar) businesses,
taking into account operational, market, financial and non-financial
factors. [Refer: paragraph 83]
Level 3 inputs (paragraphs 86–90)

B36 Examples of Level 3 inputs for particular assets and liabilities include the
following:
(a) Long-dated currency swap. A Level 3 input would be an interest rate in a

specified currency that is not observable and cannot be corroborated by
observable market data at commonly quoted intervals or otherwise for
substantially the full term of the currency swap. The interest rates in a
currency swap are the swap rates calculated from the respective
countries’ yield curves.
(b) Three-year option on exchange-traded shares. A Level 3 input would be

historical volatility, ie the volatility for the shares derived from the
shares’ historical prices. Historical volatility typically does not represent
current market participants’ expectations about future volatility, even if
it is the only information available to price an option.
(c) Interest rate swap. A Level 3 input would be an adjustment to a

mid-market consensus (non-binding) price for the swap developed using
data that are not directly observable and cannot otherwise be
corroborated by observable market data.
(d) Decommissioning liability assumed in a business combination. [Refer: IFRS 3] A

Level 3 input would be a current estimate using the entity’s own data
about the future cash outflows to be paid to fulfil the obligation
(including market participants’ expectations about the costs of fulfilling

IFRS 13
the obligation and the compensation that a market participant would

require for taking on the obligation [Refer: paragraphs B31–B33] to
dismantle the asset) if there is no reasonably available information that
indicates that market participants would use different assumptions.
That Level 3 input would be used in a present value technique [Refer:
paragraphs B12–B30] together with other inputs, eg a current risk-free
interest rate or a credit-adjusted risk-free rate if the effect of the entity’s
credit standing [Refer: paragraph 43] on the fair value of the liability is
reflected in the discount rate rather than in the estimate of future cash
outflows.
(e) Cash-generating unit. A Level 3 input would be a financial forecast (eg of

cash flows or profit or loss) developed using the entity’s own data if there
is no reasonably available information that indicates that market
participants would use different assumptions. [Refer: paragraph 89 and
Measuring fair value when the volume or level of activity for an

asset or a liability has significantly decreased
B37 The fair value of an asset or a liability might be affected when there has been a
significant decrease in the volume or level of activity for that asset or liability in
relation to normal market activity for the asset or liability (or similar assets or
liabilities). [Refer: Illustrative Examples, example 14] To determine whether, on the
basis of the evidence available, there has been a significant decrease in the
volume or level of activity for the asset or liability, an entity shall evaluate the
significance and relevance of factors such as the following:
(a) There are few recent transactions.
(b) Price quotations are not developed using current information.
(c) Price quotations vary substantially either over time or among

market-makers (eg some brokered markets).
(d) Indices that previously were highly correlated with the fair values of the
asset or liability are demonstrably uncorrelated with recent indications
of fair value for that asset or liability. [Refer: paragraph 82(d)]
(e) There is a significant increase in implied liquidity risk premiums, [Refer:

paragraphs B15 and B16] yields or performance indicators (such as
delinquency rates or loss severities) for observed transactions or quoted
prices when compared with the entity’s estimate of expected cash flows,
[Refer: paragraphs B23–B30] taking into account all available market data
about credit and other non-performance risk for the asset or liability.
(f) There is a wide bid-ask spread or significant increase in the bid-ask

spread. [Refer: paragraphs 70 and 71]
(g) There is a significant decline in the activity of, or there is an absence of, a
market for new issues (ie a primary market) for the asset or liability or
similar assets or liabilities.

IFRS 13
(h) Little information is publicly available (eg for transactions that take
place in a principal-to-principal market).
B38 If an entity concludes that there has been a significant decrease in the volume or
level of activity for the asset or liability in relation to normal market activity for
the asset or liability (or similar assets or liabilities), further analysis of the
transactions or quoted prices is needed. A decrease in the volume or level of
activity on its own may not indicate that a transaction price or quoted price does
not represent fair value or that a transaction in that market is not orderly.
However, if an entity determines that a transaction or quoted price does not
represent fair value (eg there may be transactions that are not orderly), an
adjustment to the transactions or quoted prices will be necessary if the entity
uses those prices as a basis for measuring fair value and that adjustment may be
significant to the fair value measurement in its entirety. [Refer: paragraphs 72, 73
and 75] Adjustments also may be necessary in other circumstances (eg when a
price for a similar asset requires significant adjustment to make it comparable
to the asset being measured [Refer: paragraph 83(b)] or when the price is stale
[Refer: paragraph 83(c)]).
B39 This IFRS does not prescribe a methodology for making significant adjustments
to transactions or quoted prices. See paragraphs 61–66 and B5–B11 for a
discussion of the use of valuation techniques when measuring fair value.
Regardless of the valuation technique used, an entity shall include appropriate
risk adjustments, [Refer: paragraphs 64, 88, B15, B16 and Basis for Conclusions
paragraphs BC143–BC146, BC149 and BC150] including a risk premium reflecting
the amount that market participants would demand as compensation for the
uncertainty inherent in the cash flows of an asset or a liability (see paragraph
B17). Otherwise, the measurement does not faithfully represent fair value. In
some cases determining the appropriate risk adjustment might be difficult.
[Refer: Basis for Conclusions paragraph BC150] However, the degree of difficulty
alone is not a sufficient basis on which to exclude a risk adjustment. The risk
adjustment shall be reflective of an orderly transaction between market
participants at the measurement date under current market conditions. [Refer:
B40 If there has been a significant decrease in the volume or level of activity for the
asset or liability, a change in valuation technique [Refer: paragraph 65] or the use
of multiple valuation techniques may be appropriate (eg the use of a market
approach and a present value technique). When weighting indications of fair
value resulting from the use of multiple valuation techniques, an entity shall
consider the reasonableness of the range of fair value measurements. The
objective is to determine the point within the range that is most representative
of fair value under current market conditions. A wide range of fair value
measurements may be an indication that further analysis is needed. [Refer: Basis
for Conclusions paragraphs BC147 and BC148]
B41 Even when there has been a significant decrease in the volume or level of
activity for the asset or liability, the objective of a fair value measurement
remains the same [Refer: paragraph 2]. Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction (ie

IFRS 13
not a forced liquidation or distress sale) between market participants at the

measurement date under current market conditions.
B42 Estimating the price at which market participants would be willing to enter into
a transaction at the measurement date under current market conditions if there
has been a significant decrease in the volume or level of activity for the asset or
liability depends on the facts and circumstances at the measurement date and
requires judgement. An entity’s intention to hold the asset or to settle or
otherwise fulfil the liability is not relevant when measuring fair value because
fair value is a market-based measurement, not an entity-specific measurement.
Identifying transactions that are not orderly

B43 The determination of whether a transaction is orderly [Refer: paragraph 15] (or is
not orderly) is more difficult if there has been a significant decrease in the
volume or level of activity for the asset or liability in relation to normal market
activity for the asset or liability (or similar assets or liabilities). [Refer:
paragraph B37] In such circumstances it is not appropriate to conclude that all
transactions in that market are not orderly (ie forced liquidations or distress
sales). [Refer: Basis for Conclusions paragraph BC181] Circumstances that may
indicate that a transaction is not orderly include the following:
(a) There was not adequate exposure to the market for a period before the
measurement date to allow for marketing activities that are usual and
customary for transactions involving such assets or liabilities under
current market conditions.
(b) There was a usual and customary marketing period, but the seller
marketed the asset or liability to a single market participant. [Refer:
paragraphs 22 and 23]
(c) The seller is in or near bankruptcy or receivership (ie the seller is
distressed).
(d) The seller was required to sell to meet regulatory or legal requirements
(ie the seller was forced).
(e) The transaction price is an outlier when compared with other recent
transactions for the same or a similar asset or liability.
An entity shall evaluate the circumstances to determine whether, on the weight
of the evidence available, the transaction is orderly.
B44 An entity shall consider all the following when measuring fair value or
estimating market risk premiums: [Refer: paragraphs B15 and B16]
(a) If the evidence indicates that a transaction is not orderly, an entity shall
place little, if any, weight [Refer: paragraph 63] (compared with other
indications of fair value) on that transaction price.

IFRS 13
(b) If the evidence indicates that a transaction is orderly, an entity shall take
into account that transaction price. The amount of weight [Refer:
paragraph 63] placed on that transaction price when compared with other
indications of fair value will depend on the facts and circumstances,
such as the following:
(i) the volume of the transaction.
(ii) the comparability of the transaction to the asset or liability being
measured.
(iii) the proximity of the transaction to the measurement date.
(c) If an entity does not have sufficient information to conclude whether a
transaction is orderly, it shall take into account the transaction price.
However, that transaction price may not represent fair value (ie the
transaction price is not necessarily the sole or primary basis for
measuring fair value or estimating market risk premiums). When an
entity does not have sufficient information to conclude whether
particular transactions are orderly, the entity shall place less weight
[Refer: paragraph 63] on those transactions when compared with other
transactions that are known to be orderly.
An entity need not undertake exhaustive efforts to determine whether a
transaction is orderly, but it shall not ignore information that is reasonably
available. When an entity is a party to a transaction, it is presumed to have
sufficient information to conclude whether the transaction is orderly.
Using quoted prices provided by third parties

B45 This IFRS does not preclude the use of quoted prices provided by third parties,
such as pricing services or brokers, [Refer: paragraph B34(c)] if an entity has
determined that the quoted prices provided by those parties are developed in
accordance with this IFRS.
B46 If there has been a significant decrease in the volume or level of activity for the
asset or liability, [Refer: paragraph B37] an entity shall evaluate whether the
quoted prices provided by third parties are developed using current information
that reflects orderly transactions or a valuation technique that reflects market
participant assumptions (including assumptions about risk [Refer: paragraphs 88,
B15 and B16]). In weighting a quoted price as an input to a fair value
measurement, an entity places less weight [Refer: paragraph 63] (when compared
with other indications of fair value that reflect the results of transactions) on
quotes that do not reflect the result of transactions.
B47 Furthermore, the nature of a quote (eg whether the quote is an indicative price
or a binding offer) shall be taken into account when weighting the available
evidence, with more weight given to quotes provided by third parties that
represent binding offers.

IFRS 13
Appendix C
Effective date and transition
This appendix is an integral part of the IFRS and has the same authority as the other parts of the
IFRS.
C1 An entity shall apply this IFRS for annual periods beginning on or after
1 January 2013. Earlier application is permitted. If an entity applies this IFRS
for an earlier period, it shall disclose that fact. [Refer: Basis for Conclusions
paragraphs BC227 and BC228]
C2 This IFRS shall be applied prospectively as of the beginning of the annual period
in which it is initially applied. [Refer: Basis for Conclusions paragraph BC229]
C3 The disclosure requirements of this IFRS need not be applied in comparative

information provided for periods before initial application of this IFRS. [Refer:
C4 Annual Improvements Cycle 2011–2013 issued in December 2013 amended

paragraph 52. An entity shall apply that amendment for annual periods
beginning on or after 1 July 2014. An entity shall apply that amendment
prospectively from the beginning of the annual period in which IFRS 13 was
initially applied. [Refer: Basis for Conclusions paragraph BC230A] Earlier application
is permitted. If an entity applies that amendment for an earlier period it shall
disclose that fact.
C5 IFRS 9, as issued in July 2014, amended paragraph 52. An entity shall apply that
amendment when it applies IFRS 9.

IFRS 13
Appendix D
Amendments to other IFRSs
This appendix sets out amendments to other IFRSs that are a consequence of the Board issuing
IFRS 13. An entity shall apply the amendments for annual periods beginning on or after 1 January
2013. If an entity applies IFRS 13 for an earlier period, it shall apply the amendments for that
earlier period. Amended paragraphs are shown with new text underlined and deleted text struck
through.
*****
The amendments contained in this appendix when this IFRS was issued in 2011 have been incorporated
into the relevant IFRSs published in this volume.

IFRS 13
Approval by the Board of IFRS 13 issued in May 2011
International Financial Reporting Standard 13 Fair Value Measurement was approved for issue
by the fifteen members of the International Accounting Standards Board.
Sir David Tweedie Chairman
Stephen Cooper
Philippe Danjou
Jan Engström
Patrick Finnegan
Amaro Luiz de Oliveira Gomes
Prabhakar Kalavacherla
Elke König
Patricia McConnell
Warren J McGregor
Paul Pacter
Darrel Scott
John T Smith
Tatsumi Yamada
Wei-Guo Zhang

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IFRS 13

Fair Value Measurement

姝 IFRS Foundation A715

FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION

BASIS FOR CONCLUSIONS

A716 姝 IFRS Foundation

姝 IFRS Foundation A717

International Financial Reporting Standard 13

(c) requires disclosures about fair value measurements. [Refer:

2 Fair value is a market-based measurement, not an entity-specific measurement.

3 When a price for an identical asset or liability is not observable, an entity

A718 姝 IFRS Foundation

Definition of fair value

10 Paragraph B2 describes the overall fair value measurement approach.

The asset or liability

11 A fair value measurement is for a particular asset or liability [Refer:

姝 IFRS Foundation A719

12 The effect on the measurement arising from a particular characteristic will

(a) a stand-alone asset or liability (eg a financial instrument or a

14 Whether the asset or liability is a stand-alone asset or liability, a group of assets,

15 A fair value measurement assumes that the asset or liability is exchanged

(a) in the principal market for the asset or liability; or

17 An entity need not undertake an exhaustive search of all possible markets to

A720 姝 IFRS Foundation

21 Even when there is no observable market to provide pricing information about

23 In developing those assumptions, an entity need not identify specific market

姝 IFRS Foundation A721

26 Transaction costs do not include transport costs. If location is a characteristic of

Application to non-financial assets

Highest and best use for non-financial assets

27 A fair value measurement of a non-financial asset takes into account a

A722 姝 IFRS Foundation

Valuation premise for non-financial assets

姝 IFRS Foundation A723

33 Paragraph B3 describes the application of the valuation premise concept for

Application to liabilities and an entity’s own equity

35 Even when there is no observable market to provide pricing information about

Liabilities and equity instruments held by other parties as assets

37 When a quoted price for the transfer of an identical or a similar liability

A724 姝 IFRS Foundation

participant that holds the identical item as an asset at the measurement

(i) an income approach [Refer: paragraph B10] (eg a present value

姝 IFRS Foundation A725

Liabilities and equity instruments not held by other parties as assets

40 When a quoted price for the transfer of an identical or a similar liability

42 The fair value of a liability reflects the effect of non-performance risk.

A726 姝 IFRS Foundation

with an inseparable third-party credit enhancement [Refer: paragraph 39(b)] that

Restriction preventing the transfer of a liability or an entity’s own

45 When measuring the fair value of a liability or an entity’s own equity

Financial liability with a demand feature

姝 IFRS Foundation A727

Application to financial assets and financial liabilities

48 An entity that holds a group of financial assets and financial liabilities is

49 An entity is permitted to use the exception in paragraph 48 only if the entity

50 The exception in paragraph 48 does not pertain to financial statement

A728 姝 IFRS Foundation

51 An entity shall make an accounting policy decision in accordance with IAS 8

52 The exception in paragraph 48 applies only to financial assets, financial