The IASB’s new standard IFRS 13, ‘Fair value measurement’, explains how to measure fair value and aims to enhance fair value disclosures. The new standard defines fair value based on an exit price – i.e. 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. It also assumes that the transaction to sell the asset or transfer the liability takes place in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for it. The standard also clarifies that the measurement should be market-based rather than entity-specific and that for non-financial assets, fair value is based on its highest and best use.
Almost all entities use fair value measurements and will therefore be subject to the new requirements. Many of the changes will affect primarily financial institutions and investment entities. However, others may be affected and the enhanced disclosure requirements must be applied by all entities. The new standard does not address when to measure fair value or require additional fair value measurements.