ifrs 13 cpd ppt 12 2013

IFRS 13 Fair Value Measurement

© IFRS Foundation

2Disclaimer and allowed useThis Microsoft PowerPoint® presentation was prepared by IASB Education Initiative staff as a convenience for others. It has not been approved by the IASB.

The IFRS Foundation allows individuals and organisations to use this presentation to conduct training, provided that copies of this presentation (or any part of it) whether hard copy, electronic or otherwise are provided free of charge. If you require any other use please contact us. Any changes to this presentation must be clearly identifiable as not part of the presentation prepared by the Education Initiative staff and the copyright notice must be removed from every amended page.

Disclaimer: The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this presentation, whether such loss is caused by negligence or otherwise. This presentation is intended as guidance only and does not constitute any type of advice.

This presentation may be modified from time to time. To download the latest version and to learn more about the IASB Education Initiative, visit: http://www.ifrs.org/Use-around-the-world/Education/Pages/Education.aspx

© IFRS Foundation

http://www.ifrs.org/Use-around-the-world/Education/Pages/Education.aspx

3Agenda• Part I: context and scope • Part II: measurement of fair value• Part III: valuation approaches and techniques• Part IV: disclosures• Part V: effective date and transition

© IFRS Foundation

Part IContext and scope

© IFRS Foundation

5Part I: context and scope• Why IFRS 13 is necessary• Scope—when IFRS 13 applies• Scope—what IFRS 13 does not apply to

© IFRS Foundation

6

Before IFRS 13–dispersed and conflicting guidance

IAS 40IAS 39/IFRS 9 IAS 41IAS 36 Etc.

IFRS 13

• Single source of measurement guidance• Clear measurement objective• Consistent and transparent disclosures about fair

value

Topic 820 in US GAAP (codified SFAS 157)

© IFRS Foundation

The previous definition of fair value 7

Fair value definition Its weaknesses

The amount for which an asset could be

exchanged or a liability settled

between knowledgeable, willing parties in an arm’s

length transaction.

It did not specify whether an entity is buying or selling the asset

?

It was unclear about what ‘settling’ meant because it did not refer to the creditor

It was unclear about whether it was market-based

It did not state explicitly when the exchange or settlement takes place

© IFRS Foundation

8When does IFRS 13 apply?

• When another IFRS requires or permits fair value measurements or disclosures about fair value measurements

• IFRS 13 also applies to measurements, such as fair value less cost to sell, based on fair value or disclosures about those measurements

© IFRS Foundation

When does IFRS 13 apply? 9

For example, if you own a biological asset…

IAS 41A biological asset shall be

measured on initial recognition and

at the end of each reporting period at its fair value less cost to sell

IFRS 13

What

and

when

How

© IFRS Foundation

What does IFRS 13 not apply to? 10

Excluded from the scope

• IFRS 2 and IAS 17

Disclosures in IFRS 13 not required for

• Plan assets (IAS 19)• Retirement benefit plan

investments (IAS 26)• Assets for which recoverable

amount is fair value less cost of disposal (IAS 36)

Not required for measurement similar to fair value

• IAS 2 (net realisable value)• IAS 36 (value in use)

© IFRS Foundation

Part IIMeasurement of fair value

© IFRS Foundation

12Part II: measurement of fair value• Definition of fair value and measurement principles• Considerations specific to non-financial assets• Considerations specific to liabilities

© IFRS Foundation

Definition of fair value and measurement principles

© IFRS Foundation

IFRS 13’s ‘new’ definition of fair value 14

New fair value definition Comments

… 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 specifies that the entity is selling the asset

It refers to the transfer of a liability

It is clear it is market-based

It states explicitly when the sale or transfer takes place

It is not a forced or distressed sale

© IFRS Foundation

Fair value at initial recognition

• Transaction price (entry price) = Fair value (exit price) unless:

–Transaction takes place in different markets–Transactions are for different units of

account –Seller is distressed or forced

–Transactions are between related parties

15

© IFRS Foundation

A hypothetical transaction price 16

Market participant

buyer

Market participant

seller

Fair value of

Principal market (or most advantageous market)

an asset

a liability

at the measurement date

© IFRS Foundation

17Who would transact for the item?

• Market participants are buyers and sellers in the principal (or most advantageous) market who are:

• Market participants act in their economic best interest

– Maximise the value of the asset– Minimise the value of the liability

Independent Knowledgeable

Able to enter into a transaction

Willing to enter into a transaction

© IFRS Foundation

18What is being measured?

• Unit of account– IAS 41: A biological asset shall be measured …

at its fair value less costs to sell…• Characteristics

– Which characteristics would a market participant buyer take into account?

– age and remaining economic life– condition– location– restrictions on use or sale– contractual terms

© IFRS Foundation

Where would the transaction take place?

• In most cases, these markets will be the same– arbitrage opportunities will be competed away

• The entity must have access to the principal (or most advantageous) market

19

Fair value is the price in the …

Principal marketOr, if no principal market, the most advantageous market

The market with the greatest volume and level of activity for the asset or liability

The market that maximises the amount that would be received to sell the asset and minimises the amount that would be paid to transfer the liability

© IFRS Foundation

Transaction and transport costs 20

Description Included in fair value?

Transaction costs

The costs to sell the asset or transfer the liability that are directly attributable to the disposal of the asset or the transfer of the liability

No (Although they are considered in the assessment of which market is most advantageous)

They are a characteristic of the transaction, not of the asset or liability

Transport costs

The costs that would be incurred to transport an asset from its current location to its exit market

Yes Transport changes a characteristic of the asset (its location)

© IFRS Foundation

21

How do we arrive at a market-based measurement?

Is there a quoted price in an active market for an identical asset or liability?

Use this quoted price to measure fair value (Level 1)

Replicate a market price through a valuation technique* (using observable+

and unobservable inputs: Levels 2 and 3)

No significant unobservable

(Level 3) inputs‡ =

Level 2 measurement

Use of significant unobservable

(Level 3) inputs‡ =

Level 3 measurement

Must use without adjustment

Yes No

* Valuation techniques include the market approach, income approach and cost approach.+ Maximise the use of relevant observable inputs and minimise the use of unobservable inputs. Observable inputs include market data (prices and other information that is publicly available).‡ Unobservable inputs include the entity’s own data (budgets, forecasts), which must be adjusted if market participants would use different assumptions.

© IFRS Foundation

Considerations specific to non-financial assets

© IFRS Foundation

23Highest and best use

• Fair value assumes a non-financial asset is used by market participants at its highest and best use

–the use of a non-financial asset by market participants that maximises the value of the asset

– physically possible– legally permissible– financially feasible

© IFRS Foundation

24Highest and best use continued

• Highest and best use is determined from the perspective of market participants, even if the entity intends a different use.

• However, an entity’s current use of a non-financial asset is presumed to be its highest and best use unless market or other factors suggest that a different use by market participants would maximise the value of the asset.

© IFRS Foundation

25Highest and best use continued

• Highest and best use is usually (but not always) the current use

– if for competitive reasons an entity does not intend to use the asset at its highest and best use, the fair value of the asset should still be measured assuming its highest and best use by market participants (defensive value)

• Does not apply to financial instruments or liabilities

© IFRS Foundation

26Valuation premise• A non-financial asset either:

– provides maximum value through its use in combination with other assets and liabilities as a group

– is its value influenced by it being ‘operated’ with other assets?

– an example: equipment used in production facility– market participants are assumed to hold

complementary assets– provides maximum value through its use on a stand-alone

basis– is its value independent of its use with other assets?– an example: a vehicle or an investment property

• Does not apply to financial instruments or liabilities© IFRS Foundation

Considerations specific to liabilities

© IFRS Foundation

Transfer notion–liabilities and an entity’s own equity instruments

• Fair value assumes a transfer to a market participant who takes on the obligation. The transfer assumes:

28

Liability or equity remains outstanding

Restrictions on transfer are already reflected in inputs; no additional adjustment required

Fair value of a liability reflects the effect of non-performance risk

© IFRS Foundation

Decision tree—liability measurement 29

Is there an observable market price to transfer the

instrument? Does somebody hold the corresponding

asset?

Fair value = observable market price of instrument

Fair value = fair value of the corresponding asset

Is there an observable market price for the

instrument traded as an asset?

Fair value = another valuation

technique*

NoYes

Yes No

Yes

Fair value = observable market

price of asset

No

Fair value = another valuation

technique

* Using the perspective of a market participant that owes the liability or issued the claim on equity

Level 2 or 3© IFRS Foundation

30No corresponding asset

Two possible ways to approach it:

1. Use the future cash flows that a market participant would expect to incur in fulfilling the obligation, including the compensation that a market participant would require for taking on the obligation. Such compensation includes: – the cost to fulfil the obligation plus a return for

undertaking the activity; and– a risk premium to compensate for the risk that

actual cash flows might differ from expected cash flows.

© IFRS Foundation

No corresponding asset continued

2. Use the amount that a market participant would receive to enter into or issue an identical liability or equity instrument.

31

© IFRS Foundation

Part IIIValuation approaches and

techniques

© IFRS Foundation

Part III: valuation techniques• Valuation approaches• Valuation techniques—illustration for unquoted

equity instruments• Bid and ask spread, premiums and discounts • Measuring the fair value of portfolios

33

© IFRS Foundation

Valuation approaches

© IFRS Foundation

35Valuation approaches

• Market approach– prices from market transactions for identical or

similar assets or liabilities, for example:– using market multiples (eg of earnings or cash flows)

from a set of comparable companies and applying those multiples to the earnings or cash flows of the company being valued

Measure fair value using valuation techniques that are appropriate in the circumstances and for which

sufficient data are available.

© IFRS Foundation

36Valuation approaches continued

• Cost approach– the cost to acquire or reconstruct a substitute

asset of comparable utility, adjusted for physical, functional and economic obsolescence

– often used for PP&E and some intangibles• Income approach

– converts future amounts (eg cash flows) to a single current discounted amount, for example:

– present values– option pricing models– multi-period excess earnings method

© IFRS Foundation

Selecting a valuation approach 37Le

vel 2

Leve

l 1Le

vel 3

Market approachMarket price is available

• Price needs adjustment

• Observable inputs

• Price for identical item

• Must be used without adjustment

Cost approach (eg replacement cost)

Income approach (eg discounted cash flow)


• Rare


• Rare

• Price needs adjustment

• Unobservable inputs



• Not directly income-producing

• No identical market price• Price needs adjustment

• Directly identifiable cash flows

© IFRS Foundation

Valuation techniques—illustration for unquoted equity instruments

© IFRS Foundation

Measuring the fair value of unquoted equity instruments

• Scope of this particular illustration:– Unquoted equity instruments not quoted in an

active market– Non-controlling interest within the scope of IFRS 9

• A range of valuation techniques can be used.• Judgement is involved

– in the selection of a valuation technique (given specific facts and circumstances, some techniques might be more appropriate than others)

– when applying the valuation technique© IFRS Foundation

40Valuation approaches and techniques Valuation approaches

Valuation techniques

Market approach Transaction price paid for an identical or a similar instrument of an investee

Comparable company valuation multiples

Income approach Discounted cash flow (DCF) method

Dividend discount model (DDM)

Constant-growth DDM

Capitalisation model

A combination of approaches may be used

Adjusted net asset method

© IFRS Foundation

41Market approach• Uses prices and other relevant information that have

been generated by market transactions that involve identical or comparable assets.

• Techniques that are most commonly referred to for valuing unquoted equity instruments are related to the data sources that they use:

– transaction price paid for an identical or a similar instrument of an investee

– comparable company valuation multiples derived from quoted prices (ie trading multiples) or from prices paid in transactions such as mergers and acquisitions (ie transaction multiples)

© IFRS Foundation

42Valuation multiples

• Valuation basis:– Equity value– Enterprise value (EV)

• Multiple • Performance measures:

– EBITDA, EBIT, EBITA– Earnings, ie net income (E)– Book value, ie value of an entity’s shareholders

equity (B)– Revenue

© IFRS Foundation

43

Fair value measurement using valuation multiples–four steps

• Identify comparable company peers.• Select the performance measure that is most

relevant to assessing the value for the investee.• Apply the appropriate valuation multiple to the

relevant performance measure of the investee to obtain an indicated fair value of the investee’s equity value or the investee’s enterprise value.

• Make appropriate adjustments to ensure comparability (eg non-controlling interest discount).

© IFRS Foundation

44Commonly used valuation multiples• Earnings multiples commonly used when valuing:

established business with an identifiable stream of continuing and stable earnings:

– ,– (where P is entity’s market capitalisation)

• Book value multiples: where entities use their equity capital bases to generate earnings (eg businesses that have not yet generated positive earnings)

• Revenue multiples:

© IFRS Foundation

45

Example–applying comparable company peers’ multiples• Investor has 5% non-controlling interest in Entity J

(private company) and measures it at fair value.• Financial information about Entity J

– Normalised EBITDA = CU*100 million– Debt at FV = CU350 million

• Six comparable public company peers (same business and geographical region)

• EV/EBITDA multiple was chosen because there are differences in capital structure and depreciation policies between J and peers.

• No relevant non-operating items.© IFRS Foundation* CU = currency units

46

Example–applying comparable company peers’ multiples continued

Step 1 Identify comparable peers• The investor has selected six comparable public

company peers that operate in the same business and geographical region as Entity J.

Step 2 Select the performance measure that is most relevant to assessing the value for the investee.• The investor has chosen the EV/EBITDA multiple to

value Entity J because there are differences in the capital structure and depreciation policies between Entity J’s comparable company peers and Entity J.

© IFRS Foundation

47


Step 3 Apply valuation multiple to obtain fair value• Trading multiples of the comparable public company

peers are:

Upon further analysis, these entities are considered comparable (ie similar risk, growth and cash flow-generating profiles

© IFRS Foundation

48


Step 3 continued

• Investor selected average multiple (ie 8.5x) because it appropriately reflects Entity J’s characteristics relative to its peers.

© IFRS Foundation

49


Step 4 Make appropriate adjustments to ensure comparability• No non-controlling interest discount is required

because the valuation multiples used to measure the fair value of Entity J were derived from the trading prices of the comparable public company peers and are consistent with holding a five per cent non-controlling equity interest in Entity J.

© IFRS Foundation

50


Step 4 continued

• Discount for the lack of liquidity assessed to be 30% on the basis of relevant studies applicable in the region and industry as well as on the specific facts and circumstances.

• Therefore

• And the fair value of 5% non-controlling interest is CU17.5m (ie CU350m×0.05)

© IFRS Foundation

51Income approach

• Income approach converts future amounts (eg cash flows) to a single current (ie discounted) amount.

–Discounted Cash Flow method (DCF)–Dividend Discount Model (DDM)–Constant growth DDM–Capitalisation model

© IFRS Foundation

52Enterprise value

• Enterprise value = discounted FCFF @ WACC– FCFF (Free Cash Flow to Firm): a common definition among

others cash flow from assets before any debt payments but after making reinvestments that are needed for future growth or the cash flows available to all capital providers (debt/equity)

– WACC: discount rate that reflects the cost of raising both debt and equity financing, in proportion to their use (ie the Weighted Average Cost of Capital)

– D&A = Depreciation and amortisation– RR = Reinvestment requirements– NWC = Net working capital– t = income tax rate

© IFRS Foundation

53

WACC: cost of debt capital component and computation

• Computing WACC requires cost of equity capital and cost of debt capital (, respectively) and market participants’ expectations of the investee’s long-term optimal capital structure

• There are a number of approaches for estimating – Based on recent borrowings– By reference to an actual or synthetic credit

rating and default spread

© IFRS Foundation

54

WACC: cost of equity capital component

• Cost of equity capital () is often estimated using CAPM:

where:

is the expected rate of return on a risk-free asset

is the required market rate of return on a fully diversified portfolio

is the measure of the systematic risk for the individual shares

© IFRS Foundation

55

Example–DCF method using enterprise value

• An investor has 5% non-controlling interest in Entity R.

• FCFF of Y1 to Y5 of CU100m and terminal value from Y5 onwards is CU1,121.8m (assumption: inflation is offset by market shrinkange, no growth in nominal terms)

• WACC 8.9%• Fair value of debt = CU240m• Non-controlling interest discount CU8m• Discount for the lack of liquidity CU4.09m

© IFRS Foundation

58

A combination of approaches–adjusted net asset method

• Involves deriving the fair value of an investee’s equity instruments by reference to the fair value of its assets and liabilities (recognised and unrecognised).

• Appropriate for an investee whose value is mainly derived from the holding of assets (rather than from deploying those assets as part of a broader business).

• Requires measurement of the fair value of the individual assets and liabilities.

• Non-controlling interest and liquidity discounts may be applicable.

© IFRS Foundation

Pricing within a bid-ask spread 60

The price at which the dealer will…

For an asset, the non-dealer entity’s…

For a liability, the non-dealer entity’s…

Bid price buy exit price entry price

Ask (offer) price sell entry price exit price

© IFRS Foundation

61Pricing within a bid-ask spread continued

• If an asset or a liability measured at fair value has a bid and an ask price, use the price within the bid-ask spread that is most representative of fair value

• Mid-market pricing or other pricing conventions can be used as a practical expedient for fair value measurements within a bid-ask spread if these conventions do not contravene the principle

© IFRS Foundation

62Premiums and discounts

• Any premium or discount applied must be consistent with:

– characteristics of asset or liability– the unit of account in the IFRS requiring fair

value• No block discounts

– an adjustment to a quoted price for reduction that would occur if a market participant were to sell a large holding of assets or liabilities in one or a few transactions

© IFRS Foundation

64

• IFRS 13 permits an entity to measure a group of financial assets and financial liabilities on the basis of the net risk exposure to either market risks or credit risks.

• This practice was already allowed in IAS 39/IFRS 9• The “exception” was permitted because:

– derivatives often cannot be sold, but management can mitigate risk exposure by entering into an offsetting position

– portfolio composition is entity-specific (depends on entity’s risk preferences)

Portfolios of financial instruments

© IFRS Foundation

65Portfolios of financial instrumentscontinued

• Conditions that need to be met: – Entity must have documented risk management strategy– The entity provides information on the basis of the net risk

exposure to key management personnel– Only for portfolios of instruments measured at FV

• Accounting policy decision• Does not affect presentation in IAS 32.

– Allocations shall be performed on a reasonable and consistent basis.

• Portfolio-level adjustments may need to be allocated to the unit of account for presentation purposes.

© IFRS Foundation

66

• If there are offsetting market risks:– can apply bid-ask spread to net open risk

position– offsetting risks must be “substantially the same”– duration of instruments leading to exposure to

market risk must be “substantially the same”

Market risk: the risk that the price will fluctuate because of changes in market prices

(currency risk, interest rate risk and other price risk).

Portfolios of financial instrumentscontinued

© IFRS Foundation

67

• If the entity is exposed to the credit risk of a particular counterparty, an entity shall include the effect of:– its net exposure to the credit risk of the counterparty.– the counterparty’s net exposure to its credit risk.– any existing arrangements that mitigate credit risk

exposure if market participants expect that such arrangements would be legally enforceable in the event of default.

Credit risk: the risk the entity or the counterparty will not pay or otherwise perform

as agreed.

Portfolios of financial instrumentscontinued

© IFRS Foundation

69General

• Fair value at end of reporting period• Level in hierarchy• Transfers between levels• Valuation techniques and inputs used• If highest and best use is different from

current use

© IFRS Foundation

70General continued

• Disclosures also required for unrecognised amounts (ie that are only disclosed) or amounts recognised using a different measure (eg amortised cost)

–eg financial asset at amortised cost, but IFRS 7 requires disclosure of asset’s fair value

• Quantitative disclosures in a table unless another format is better

© IFRS Foundation

71General continued

Illustrative Example 15 - Fair values at the end of the reporting period and level of the fair value hierarchy for recurring fair value measurements…

© IFRS Foundation

31/12/X9

Quoted prices in active markets

for identical assets

(Level 1)

Significant other observable

inputs (Level 2)

Significant unobservable

inputs (Level 3)

Total gains (losses)

Recurring fair value measurements

Trading equity securities(a):Real estate industry 93 70 23 Oil and gas industry 45 45 Other 15 15

Total trading equity securities 153 130 23

Other equity securities(a):Financial services industry 150 150 Healthcare industry 163 110 53 Energy industry 32 32

Private equity fund investments(b) 25 25 Other 15 15

Total other equity securities 385 275 110

Debt securities:Residential mortgage-backed securities 149 24 125 Commercial mortgage-backed securities 50 50 Collateralised debt obligations 35 35 Risk-free government securities 85 85 Corporate bonds 93 9 84

Total debt securities 412 94 108 210

Hedge fund investments:Equity long/short 55 55 Global opportunities 35 35 High-yield debt securities 90 90

Total hedge fund investments 180 90 90

Derivatives:Interest rate contracts 57 57 Foreign exchange contracts 43 43 Credit contracts 38 38 Commodity futures contracts 78 78 Commodity forward contracts 20 20

Total derivatives 236 78 120 38

Investment properties:

Commercial—Europe 27 27 Total investment properties 58 58

Total recurring fair value measurements 1,424 577 341 506

Non-recurring fair value measurements

Total non-recurring fair value measurements 26 26 (15)

(CU in millions)Fair value measurements at the end of the

reporting period using

Description

72General continued

Recurring fair value measurements

Real estate industry 93 70 23 Oil and gas industry 45 45 Other 15 15

Total trading equity securities 153 130 23

Financial services industry 150 150 Healthcare industry 163 110 53 Energy industry 32 32

Other 15 15 Total other equity securities 385 275 110

Debt securities:Residential mortgage-backed securities 149 24 125 Commercial mortgage-backed securities 50 50 Collateralised debt obligations 35 35 Risk-free government securities 85 85 Corporate bonds 93 9 84

Total debt securities 412 94 108 210

Hedge fund investments:Equity long/short 55 55 Global opportunities 35 35 High-yield debt securities 90 90

Total hedge fund investments 180 90 90

Derivatives:Interest rate contracts 57 57 Foreign exchange contracts 43 43 Credit contracts 38 38 Commodity futures contracts 78 78 Commodity forward contracts 20 20

Total derivatives 236 78 120 38

Investment properties:

Commercial—Europe 27 27 Total investment properties 58 58

Total recurring fair value measurements 1,424 577 341 506

Non-recurring fair value measurements

Assets held for sale(c) 26 26 (15) Total non-recurring fair value measurements 26 26 (15)

(a) On the basis of its analysis of the nature, characteristics and risks of the securities, the entity has determined that presenting them by industry is appropriate.(b) On the basis of its analysis of the nature, characteristics and risks of the investments, the entity has determined that presenting them as a single class is appropriate.(c) In accordance with IFRS 5, assets held for sale with a carrying amount of CU35 million were written down to their fair value of CU26 million, less costs to sell of CU6 million (or CU20 million), resulting in a loss of CU15 million, which was included in profit or loss for the period.(Note: A similar table would be presented for liabilities unless another format is deemed more appropriate by the entity.)

Illustrative Example 15 - Fair values at the end of the reporting period and level of the fair value hierarchy for non-recurring fair value measurements…

© IFRS Foundation

73More information about Level 3

• Quantitative disclosure of unobservable inputs and assumptions used

• Reconciliation of opening to closing balances• Description of valuation process in place

© IFRS Foundation

74More information about Level 3 continued

• Sensitivity analysis:– narrative discussion about sensitivity to changes

in unobservable inputs, including inter-relationships between inputs that magnify or mitigate the effect on the measurement

– quantitative sensitivity analysis for financial instruments

• More detail in determining classes

© IFRS Foundation


Illustrative Example 17 – Quantitative information about significant unobservable inputs used

Quantitative information about fair value measurements using significant unobservable inputs (Level 3)(CU in millions)

DescriptionFair value at

31/12/X9 Valuation technique(s) Unobservable input Range (weighted average)

Other equity securities:Healthcare industry 53 Discounted cash f low w eighted average cost of capital 7% - 16% (12.1%)

long-term revenue grow th rate 2% - 5% (4.2%)

long-term pre-tax operating margin 3% - 20% (10.3%)

discount for lack of marketability (a) 5% - 20% (17%)

control premium(a) 10% - 30% (20%)

Market comparable companies EBITDA multiple(b) 10 - 13 (11.3)

revenue multiple(b) 1.5 - 2.0 (1.7)



Energy industry 32 Discounted cash f low w eighted average cost of capital 8% - 12% (11.1%)

long-term revenue grow th rate 3% - 5.5% (4.2%)

long-term pre-tax operating margin 7.5% - 13% (9.2%)



Market comparable companies EBITDA multiple(b) 6.5 - 12 (9.5)

revenue multiple(b) 1.0 - 3.0 (2.0)



Private equity fund investments 25 Net asset value(c) n/a n/a

probability of default 5% - 50% (10%)

loss severity 40% - 100% (60%)

probability of default 2% - 25% (5%)

loss severity 10% - 50% (20%)

comparability adjustments (%) -10% - +15% (+5%)

cap rate 0.08 - 0.12 (0.10)

Market comparable approach price per square metre (USD) $3,000 - $7,000 ($4,500)

cap rate 0.06 - 0.10 (0.80)

Market comparable approach price per square metre (EUR) €4,000 - €12,000 (€8,500)

(a) Represents amounts used w hen the entity has determined that market participants w ould take into account these premiums and discounts w hen pricing the investments.

(b) Represents amounts used w hen the entity has determined that market participants w ould use such multiples w hen pricing the investments.

(c) The entity has determined that the reported net asset value represents fair value at the end of the reporting period.

(d) Represents the range of the volatility curves used in the valuation analysis that the entity has determined market participants w ould use w hen pricing the contracts.

(e) Represents the range of the credit default sw ap spread curves used in the valuation analysis that the entity has determined market participants w ould use w hen pricing the contracts.

(Note: A similar table would be presented for liabilities unless another format is deemed more appropriate by the entity.)

© IFRS Foundation


An entity might disclose the following:(a) For the group within the entity that decides the entity’s valuation policies and procedures:– its description;– to whom that group reports; and – the internal reporting procedures in place (eg whether and, if so, how pricing,

risk management or audit committees discuss and assess the fair value measurements);

(b) the frequency and methods for calibration, back testing and other testing procedures of pricing models;(c) the process for analysing changes in fair value measurements from period to period; (d) how the entity determined that third-party information, such as broker quotes or pricing services, used in the fair value measurement was developed in accordance with the IFRS; and(e) the methods used to develop and substantiate the unobservable inputs used in a fair value measurement.

Illustrative Example 18 – Valuation processes:

© IFRS Foundation


Illustrative Example 19 – Narrative discussion about sensitivity to changes in unobservable inputs:

The significant unobservable inputs used in the fair value measurement of the entity’s residential mortgage-backed securities are prepayment rates, probability of default and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

© IFRS Foundation

Effective date and transition

• Effective 1 January 2013• Earlier application permitted• Prospective application, no comparatives

79

© IFRS Foundation

ifrs 13 cpd ppt 12 2013

Documents

ifrs foundation5before

necessaryscopewhen ifrs

scopewhy ifrs

ifrs foundation2agendapart

appliesscopewhat ifrs

ifrs foundationwhen

powerpoint presentation

scope ifrs foundationpart