Key characteristics of fair value accounting based on its definition are shown below.
The key characteristics of fair value accounting of the definition of ‘fair value’ for IFRS 13 are:
1. a current exit price:
A definition is given in Appendix A for IFRS 13
The price is based on expectations about the future cash flows to be generated by an asset or used to payor transfer a liability.
The cash flows for an asset can be generated from use of the asset or sale of the asset.
The price may be different from an entry price.
The effect of this characteristic, for an asset, is that the price is a selling price not a buying price.
2. an orderly transaction:
A definition is given in Appendix A for IFRS 13
The transaction is a hypothetical one.
The transaction occurs in current markets, in particular in markets where orderly transactions occur. Market transactions in cases of liquidation sales or fire sales are not relevant markets.
This characteristics of fair value accounting affects the choice of markets to be observed.
3. between market participants:
A definition is given in Appendix A for IFRS 13
The phrase “knowledgeable, willing parties in an arm’s length transaction” has the same meaning.
The assumptions made in the valuation process are those made by the market participants, not those made by the reporting entity.
There is no need to identify specific market participants – the emphasis is on the characteristics of the participants.
The fair value measure is not entity-specific.
The market participants are assumed to have the other assets to combine with the asset being valued where an in-use valuation premise is applied.
4. at the measurement date:
Fair value is measured at a specific point of time taking into consideration the conditions and restrictions in relation to an asset and a liability at that date.
Characteristics of fair value accounting is depicted clearly by its definition given by IFRS 13
