Market participants

Learning objectives

• Explain who market participants are (independent, knowledgeable, able and willing to transact) and why their assumptions prevail over those of the entity.L2
• Justify the characteristics of market participants selected for a given asset.L2

Normative references

• IFRS 13 §22The assumptions used are those that market participants would use, acting in their economic best interest.
• IFRS 13 §23The entity need not identify specific market participants; it identifies characteristics that distinguish market participants generally, considering the asset or liability, the principal (or most advantageous) market and the market participants with which it would enter into a transaction in that market.
• IFRS 13Appendix A: definitions of the terms used in the Standard (active market, cost approach, entry price, exit price, expected cash flow, fair value, highest and best use, income approach, inputs, Level 1 to Level 3 inputs, market approach, market-corroborated inputs, market participants, most advantageous market, non-performance risk, observable inputs, orderly transaction, principal market, risk premium, transaction costs, transport costs, unit of account, unobservable inputs). Market participants are defined as independent, knowledgeable, able and willing to enter into a transaction.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

4 questions

• How does the entity deal with the notion of market participants when measuring an asset?L2
• Which characteristics does the entity use to describe market participants? (Several answers.)L2
• Raffinerie Dalmour holds a patent. Only it could derive an extra gain of 40,000 from synergies with its own plant; no other market participant could benefit from it. To measure the patent at fair value, what does Dalmour do with this 40,000 gain?L2
• The Verdane laboratory measures at fair value a licence on a molecule intended for a niche market. Describe in a few lines the characteristics of the market participants Verdane uses for this asset, and justify why their assumptions, rather than Verdane's, are used to set the price.L2