Purpose and nature: a market-based measurement

Learning objectives

• Explain the objective of the Standard (defining fair value, a framework for measuring it, disclosures) and why fair value is a market-based measurement, not an entity-specific one.L1

Normative references

• IFRS 13 §1Objective of the Standard: define fair value, set out in a single Standard a framework for measuring it and require disclosures.
• IFRS 13 §2Fair value is a market-based measurement, not an entity-specific one; it is based on a hypothetical orderly transaction between market participants at the measurement date under current market conditions.
• IFRS 13 §3When a price for an identical item is not observable, the entity uses another valuation technique that maximises the use of relevant observable inputs; because fair value is based on market participant assumptions (including about risk), the entity's intention to hold an asset or to settle or otherwise fulfil a liability is not relevant.

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

5 questions

• Fair value under IFRS 13 is the value the entity assigns to an asset given the use it intends to make of it.L1
• What is the objective of IFRS 13?L1
• A colleague writes in a memo: "Under IFRS 13, the fair value of our land is the one that reflects management's plan; it is an entity-specific measurement." What is wrong with this sentence?L1
• When no price is observable, the objective of the measurement remains to estimate the exit price at the measurement date, from a market participant's viewpoint.L1
• At 31 December, Orsanne measures a liability using a transfer price observed on 30 September, ignoring the market conditions at 31 December, on the grounds that "the nature of the price has not changed". What is the error?L2