1. What IFRS 13 does
IFRS 13 provides a single framework for measuring fair value when another IFRS requires or permits fair value measurement or disclosure. It defines fair value and establishes measurement and disclosure requirements.
item & unit
market
market participants
valuation technique
appropriately
Level 1–3
2. 2027 IAC scope – know this exactly
The SAICA 2027 Principles of Examination lists IFRS 13 at Level 3, with an important limitation: it applies to fair value measurement guidance relating to items that are included in the syllabus.
| 2027 IAC treatment | What it means for your study |
|---|---|
| Level 3 IFRS 13 | Be able to apply fair value principles to syllabus transactions and solve integrated problems. |
| Support for syllabus topics | IFRS 13 is pervasive: use it where another included IFRS/topic requires fair value measurement. |
| Excluded: paragraphs 34–47 | These deal with applications to liabilities and an entity's own equity instruments. |
| Excluded: paragraphs 48–56 | These deal with offsetting positions. |
3. Fair value – the definition
Fair value is 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.
Exit price
Think exit, not entry. For an asset, what could be received on sale? For a liability, what would be paid to transfer it?
Measurement date
Fair value is determined at the measurement date using conditions and assumptions that market participants would use at that date.
Orderly transaction
Assumes normal market exposure and marketing activities—not a forced transaction or distressed sale.
Market participants
Use assumptions that market participants would use, not management's own intended transaction assumptions.
Fair value is not:
- an entity-specific value based simply on management's intentions;
- necessarily the price actually paid in the original transaction;
- a forced-sale price;
- the same thing as value in use under IAS 36.
4. Market and market participants
Principal market
The principal market is the market with the greatest volume and level of activity for the asset or liability that the entity can access at the measurement date.
Most advantageous market
If there is no principal market, fair value is measured using the most advantageous market—the market that maximises the amount received for an asset or minimises the amount paid to transfer a liability, after taking transaction costs into account.
Market participant assumptions
- Independent of the reporting entity.
- Knowledgeable and reasonably informed.
- Able to enter into the transaction.
- Willing to enter into the transaction, but not forced or compelled.
5. The asset or liability being measured
Unit of account vs unit of valuation
The unit of account is determined under the relevant IFRS. IFRS 13 generally measures fair value consistently with the unit of account established by the applicable IFRS.
Characteristics of an asset or liability
Fair value measurement considers characteristics that a market participant would take into account, such as the condition and location of an asset and restrictions on its sale or use, when those characteristics are relevant.
Highest and best use – non-financial assets
For a non-financial asset, fair value considers the asset's highest and best use from a market participant perspective.
The use must be physically possible considering the asset's characteristics.
The use must comply with legal restrictions.
The use must generate adequate economic returns after considering the investment required.
6. Valuation techniques
IFRS 13 requires a valuation technique appropriate in the circumstances and for which sufficient data are available. The objective is to maximise the use of relevant observable inputs and minimise the use of unobservable inputs.
| Technique | Basic idea | Typical examples |
|---|---|---|
| Market approach | Uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or groups. | Quoted prices, market multiples, comparable transactions. |
| Cost approach | Reflects the amount that would currently be required to replace the service capacity of an asset. | Current replacement cost for specialised assets. |
| Income approach | Converts future amounts—cash flows or income/expenses—to a single current amount using a discount rate. | Present value, discounted cash flow, option-pricing models. |
7. Fair value hierarchy – Level 1, 2 and 3
The hierarchy prioritises the inputs used in the valuation, not the valuation technique itself.
| Level | Input | Memory rule |
|---|---|---|
| Level 1 | Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. | Identical + quoted + active market + accessible. |
| Level 2 | Inputs other than Level 1 quoted prices that are observable, directly or indirectly. | Observable, but not Level 1. |
| Level 3 | Unobservable inputs. | Market-participant assumptions using significant unobservable inputs. |
Important hierarchy rule
If a measurement uses inputs from different levels, the entire fair value measurement is classified at the lowest level input that is significant to the entire measurement.
8. Valuation adjustments and uncertainty
Bid–ask spreads
When a quoted price represents a bid and ask spread, IFRS 13 permits the price within the bid-ask spread that is most representative of fair value to be used, regardless of where the input is classified within the hierarchy.
Mid-market pricing
Other pricing conventions used by market participants as a practical expedient may be used if they are consistent with the objective of fair value measurement.
Day-one differences
Where the transaction price differs from fair value at initial recognition, the relevant IFRS determines the treatment of that difference. For a financial instrument, IFRS 9 contains specific requirements; do not automatically recognise every difference in profit or loss.
Uncertainty
Level 3 measurements require careful consideration of assumptions, valuation techniques and sensitivity to reasonably possible alternative assumptions where disclosure requirements apply.
9. Fair value disclosures
IFRS 13 requires disclosures that help users assess the valuation techniques and inputs used to develop fair value measurements and, for recurring Level 3 measurements, understand the effect of significant unobservable inputs.
| Area | What to know |
|---|---|
| Fair value hierarchy | Disclose fair value measurements by hierarchy level as required. |
| Valuation techniques | Explain the valuation techniques and significant inputs used. |
| Level 3 recurring measurements | Additional disclosures include reconciliation information and information about significant unobservable inputs. |
| Sensitivity | For recurring Level 3 measurements, disclose quantitative information about significant unobservable inputs and sensitivity requirements where applicable. |
| Non-recurring measurements | Apply the specific IFRS 13 disclosure requirements relevant to non-recurring fair value measurements. |
10. IAC exam approach
Step 1 – Find the underlying IFRS
Ask: Why are we measuring this item at fair value? Start with IAS 2, IAS 16, IAS 40, IAS 41 where included, IFRS 3, IFRS 9, share-based payment requirements, or another applicable standard.
Step 2 – Confirm IFRS 13 applies
IFRS 13 is the measurement framework where another IFRS requires or permits fair value, subject to scope exceptions.
Step 3 – Identify the item and unit of account
Determine what exactly is being measured and apply the relevant IFRS's unit-of-account requirements.
Step 4 – Identify the market
Step 5 – Consider highest and best use
For a non-financial asset, test physical possibility, legal permissibility and financial feasibility.
Step 6 – Select valuation technique
Market, cost or income approach. Maximise relevant observable inputs and minimise unobservable inputs.
Step 7 – Identify inputs and hierarchy
Determine whether significant inputs are Level 1, Level 2 or Level 3. Remember that the overall classification follows the lowest level input that is significant to the measurement.
Step 8 – Check disclosure
Consider hierarchy, technique, inputs, Level 3 reconciliation, sensitivity and recurring/non-recurring requirements.
11. Common exam traps
| Trap | Correct thinking |
|---|---|
| “Fair value = what the company paid.” | Fair value is an exit price at the measurement date; transaction price can differ. |
| “Use management's intended use.” | Fair value is market-based. For non-financial assets, consider highest and best use from a market-participant perspective. |
| “Most advantageous market is always used.” | Use the principal market if one exists and the entity can access it; otherwise consider the most advantageous market. |
| “Transaction costs are deducted from fair value.” | They are considered when identifying the most advantageous market, but are not a characteristic of the asset/liability and are not an adjustment to fair value. |
| “Complex model = Level 3.” | Hierarchy classification is based on the inputs significant to the measurement. |
| “One Level 3 input means everything is Level 3.” | The measurement is classified based on the lowest level input that is significant to the entire measurement. |
| “Observable inputs always mean Level 1.” | Level 1 is specifically quoted prices in active markets for identical items that are accessible at the measurement date. |
| “IFRS 13 tells you when to use fair value.” | The relevant IFRS determines whether fair value is required or permitted; IFRS 13 provides the measurement framework. |
| “Highest and best use applies to every asset.” | It is a concept for non-financial assets. |
12. Study checklist
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13. One-page brain dump
IFRS 13 = fair value measurement framework.
Fair value: exit price at measurement date in orderly transaction between market participants.
Market-based: not entity-specific.
Principal market: greatest volume and level of activity accessible to entity.
No principal market: most advantageous market.
Transaction costs: relevant to identifying most advantageous market, not an adjustment to fair value.
Non-financial asset: highest and best use.
HBU: physically possible + legally permissible + financially feasible.
Techniques: market + cost + income.
Objective: maximise relevant observable inputs; minimise unobservable inputs.
Level 1: quoted price, active market, identical item, accessible.
Level 2: observable inputs other than Level 1.
Level 3: unobservable inputs.
Overall hierarchy: lowest-level input significant to entire measurement determines classification.
Disclosures: hierarchy + technique + inputs + Level 3 information/sensitivity as applicable.
2027 IAC: Level 3, but only for fair value measurement guidance relating to syllabus items; paras 34–47 and 48–56 are specifically excluded.