Significant decrease in activity

Learning objectives

• Assess whether the volume or level of activity has significantly decreased and the consequences for observed prices.L4

Normative references

• IFRS 13To assess, on the basis of the evidence available, whether there has been a significant decrease in the volume or level of activity compared with normal market activity, the entity evaluates the significance and relevance of factors such as: few recent transactions, price quotations not based on current information or varying substantially, previously correlated indices that are now uncorrelated, a significant increase in implied liquidity risk premiums or performance indicators, a wide or significantly widening bid-ask spread, a decline in or absence of a primary market, little public information.
• IFRS 13After such a decrease, further analysis of the transactions or quoted prices is needed; the decrease alone does not show that the price does not represent fair value or that the transaction is not orderly. If a price does not represent fair value (for example a transaction that is not orderly) and is used as a basis for the measurement, it must be adjusted, possibly significantly; adjustments may also be required in other cases (price of an asset that is only similar, stale price).
• IFRS 13The Standard does not prescribe a methodology for making significant adjustments to transactions or quoted prices. Whatever the technique, the measurement includes appropriate risk adjustments, including a risk premium; the difficulty of determining it is not a reason to exclude it, and the adjustment reflects an orderly transaction under current market conditions.
• IFRS 13After a significant decrease in activity, a change in valuation technique or the use of several techniques may be appropriate; when weighting the resulting indications, the entity considers the reasonableness of the range and determines the point most representative of fair value under current market conditions; a wide range may call for further analysis.
• IFRS 13Even after a significant decrease in activity, the objective of the measurement is unchanged: the price in an orderly transaction (not a forced liquidation or distress sale) between market participants at the measurement date under current market conditions.
• IFRS 13Estimating the price at which market participants would be willing to enter into a transaction after such a decrease depends on the facts and circumstances at the measurement date and requires judgement; the entity's intention to hold the asset or to settle the liability is not relevant, because fair value is a market-based measurement, not an entity-specific one.

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

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