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    Module 2 - IFRS13

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    mojama7866
    It discusses fair value techniques such as the market, cost, and income approaches, and establishes a fair value hierarchy of inputs from Level 1 to Level 3.

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    Module 2 - IFRS13

    Uploaded by

    mojama7866
    7 views7 pages
    It discusses fair value techniques such as the market, cost, and income approaches, and establishes a fair value hierarchy of inputs from Level 1 to Level 3.

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    Module 2 -IFRS13

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    It discusses fair value techniques such as the market, cost, and income approaches, and establishes a fair value hierarchy of inputs from Level 1 to Level 3.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    7 views7 pages

    Module 2 - IFRS13

    Uploaded by

    mojama7866
    It discusses fair value techniques such as the market, cost, and income approaches, and establishes a fair value hierarchy of inputs from Level 1 to Level 3.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 7

    UNIVERSITY OF JOHANNESBURG

    DEPARTMENT OF ACCOUNTANCY
    POST-GRADUATE DIPLOMA IN ACCOUNTING SCIENCE

    ACCOUNTING IV
    2023

    MODULE 2

    FAIR VALUE

    IFRS 13

    CONTENTS PAGE

    1. Fair value measurement (IFRS 13) 2


    1. FAIR VALUE MEASUREMENT (IFRS 13)

    A. EXAMINABLE PRONOUNCEMENTS

    IFRS 13 Fair Value Measurement

    Note: Generally, examinations provide candidates with the fair values of assets and
    liabilities and test the candidate’s use of the fair values. Candidates could, to a limited
    extent, be required to advise on the appropriate fair value or select the appropriate fair value
    in the given circumstances. The disclosure requirements could be tested as well.

    B. GOALS AND OUTCOMES

    As IFRS 13 is a comprehensive standard on fair value, students should have a working


    understanding of the main principles in the standard.

    C. FRAMEWORK

    Below is an overview of the standard and summary of the most important principles.

    We recommend that candidates read through the standard, as it is an excellent summary and
    convergence of the fair value principles stemming from all the accounting standards. The
    same study approach adopted for the Conceptual Framework should be adopted here.

     Scope
    • What is excluded from the scope?
    • When are the IFRS 13 disclosures not required?
    • When are the IFRS 13 measurement requirements not required?
    • Exclude paragraphs 48 – 56 (regarding offsetting)

     Context
    • IFRS 13 consolidates the fair value guidance from across the various standards into a
    single standard. It clarifies the definition of fair value and provides additional
    disclosure requirements. It does not change when fair value can or should be used as
    it only addresses how to measure fair value.

     Objective
    • IFRS 13: [IFRS 13:1]
    - defines fair value
    - sets out in a single IFRS a framework for measuring fair value
    - requires disclosures about fair value measurements.

    • IFRS 13 applies when another IFRS requires or permits fair value measurements or
    disclosures about fair value measurements. This makes it particularly relevant for
    topics such as business combinations, financial instruments, investment properties,
    etc.

    -2-
     Definition of fair value
    • The price that would be received to sell an asset or paid to transfer a liability (exit
    price) in an orderly transaction between market participants at the measurement date.
    Fair value is an exit price.

     Measurement of fair value


    • You should be able to discuss and explain the following:
    - Fair value measurement requires identification of the specific asset or liability to
    be measured.
    - Fair value measurement takes into account the assumptions and characteristics
    of the assets/ liabilities that a market participant will take into account (e.g.
    condition, age, location, etc.)
    - Which market to obtain the exit price from?
    * The principal market
    * The most advantageous market
    - Highest and best use assumption
    - Treatment of transaction & transport costs
    - Valuation techniques (see below for detail)
    - Level of fair value hierarchy (see below for detail)

     Valuation techniques
    • An entity uses valuation techniques appropriate in the circumstances and for which
    sufficient data is available to measure fair value, maximising the use of relevant
    observable inputs and minimising the use of unobservable inputs.

    • 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 and the measurement date under current market
    conditions. Three widely used valuation techniques are:

    - Market approach: Uses prices generated by market transactions involving


    comparable assets.
    - Cost approach: Reflects the replacement cost.
    - Income approach: Discounts future income and expenses reflecting current
    market expectations.

     Fair value hierarchy


    • The standard introduces the concept of a fair value hierarchy that categorises the
    inputs used in valuation techniques into three levels:

    Level 1 – Quoted prices (unadjusted) in active markets for identical assets and
    liabilities that the entity can access at the measurement date. This provides the most
    reliable evidence of fair value. An entity shall not make an adjustment to a level 1
    input except for specific circumstances (listed in par 79)

    Level 2 – Inputs other than quoted market prices included within Level 1 that are
    observable for the asset or liability, either directly or indirectly.

    Level 3 – Inputs that are unobservable. An entity develops unobservable inputs using
    the best information available which will include the entity’s own data, taking into

    -3-
    account all information about market participant’s assumptions that is reasonably
    available.

     Disclosure
    • The disclosure requirements are substantial and could present challenges for many
    entities. For example, fair value hierarchy disclosure is also required for non-
    financial assets and liabilities carried at fair value, not only for financial instruments.
    • Examples of disclosures: level in hierarchy, transfers between levels, etc.
    • More onerous disclosures are required when level 3 inputs are used.
    • IFRS 13 Illustrative Examples: 15 - 19 (paragraphs 60 - 66) can be used as a guide
    for the disclosure requirements.

    Accounting policies disclosure- significant judgement and estimates

    -4-
    Investment Property Example

    -5-
    -6-
    -7-

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