IFRS 13 Fair Value Measurement — Complete Guide

Fair value is one of the most important — and sometimes contentious — concepts in financial reporting. IFRS 13 brings consistency to it by providing a single framework for measuring fair value and disclosing how it has been determined. This guide explains what IFRS 13 is, how it defines and measures fair value, the fair value hierarchy, and why it matters — in clear, plain language for accountants and finance professionals. Always check the current text of the standard and any amendments via the IFRS Foundation or your local adoption, as standards are updated over time. For related reading, see our ACCA SBR guide.

What is IFRS 13?

IFRS 13 is the International Financial Reporting Standard that sets out a single framework for measuring fair value and for the disclosures about fair value measurements. It doesn't decide when fair value should be used — that's determined by other standards — but rather provides consistent guidance on how to measure it when it is required or permitted. Before IFRS 13, fair value guidance was spread across various standards and could be inconsistent. By centralising the definition, measurement framework and disclosure requirements, IFRS 13 promotes consistency and comparability in how fair value is determined and reported across different items and entities.

How IFRS 13 defines fair value

IFRS 13 defines fair value as 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. Several aspects of this definition are important:

• It's an exit price — the price to sell or transfer, not necessarily the price paid to acquire.
• It's market-based — based on assumptions market participants would use, not entity-specific assumptions.
• It assumes an orderly transaction — not a forced or distressed sale.

For non-financial assets, fair value also considers a market participant's ability to generate economic benefits through the asset's highest and best use. This consistent definition underpins the whole measurement framework.

The fair value hierarchy

A central feature of IFRS 13 is the fair value hierarchy, which categorises the inputs used in measuring fair value into three levels, reflecting how observable and reliable they are:

• Level 1 — quoted prices in active markets for identical items; the most reliable inputs.
• Level 2 — inputs other than quoted prices that are observable, directly or indirectly.
• Level 3 — unobservable inputs, used where observable inputs aren't available, requiring more judgement.

The hierarchy prioritises observable inputs over unobservable ones, and drives much of the disclosure — the lower the level, the more information users need about how the measurement was reached. Measurements relying on Level 3 inputs naturally attract the most scrutiny.

Valuation techniques and disclosures

IFRS 13 allows fair value to be measured using appropriate valuation techniques — broadly, market approaches (using market transactions), income approaches (such as discounting future cash flows) and cost approaches — chosen according to what's appropriate and what data is available, maximising the use of observable inputs. The standard also requires extensive disclosures, helping users understand the valuation techniques and inputs used, and — for Level 3 measurements — the judgements involved and their sensitivity. These disclosures are an important part of IFRS 13, giving users insight into how fair values were determined and how much estimation they involve.

Why IFRS 13 matters

IFRS 13 matters because fair value is used widely in financial reporting, and how it's measured can significantly affect the financial statements. By providing a single, consistent framework and definition, IFRS 13 improves comparability and transparency — users can better understand and compare fair value measurements across entities. Its hierarchy and disclosures also help users gauge how reliable a measurement is and how much judgement it involves. For preparers, auditors and analysts, understanding IFRS 13 is important to measuring and interpreting fair value properly. Always refer to the current standard for the detailed requirements, as these can be amended over time.

Frequently asked questions

What does IFRS 13 cover?

It provides a single framework for measuring fair value and the related disclosures — guidance on how to measure fair value, not when it must be used.

How does IFRS 13 define fair value?

As the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date — an exit price, market-based and assuming an orderly transaction.

What is the fair value hierarchy?

A three-level categorisation of measurement inputs: Level 1 (quoted prices in active markets), Level 2 (other observable inputs) and Level 3 (unobservable inputs) — prioritising observable inputs.

Why does IFRS 13 matter?

Fair value is used widely, so a consistent framework improves comparability and transparency, and the hierarchy and disclosures help users judge how reliable a measurement is.

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