IFRS 13, ‘Fair value management’, provides a common framework for measuring fair value where required or permitted by another IFRS.

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’. [IFRS 13 para 9]. The key principle is that fair value is the exit price, from the perspective of market participants who hold the asset or owe the liability, at the measurement date. It is based on the perspective of market participants rather than the entity itself, so fair value is not affected by an entity’s intentions towards the asset, liability or equity item that is being fair valued.

A fair value measurement requires management to determine four things: the particular asset or liability that is the subject of the measurement (consistent with its unit of account); the highest and best use for a non-financial asset; the principal (or, in its absence, the most advantageous) market; and the valuation technique. [IFRS 13 para B2].IFRS 13 addresses how to measure fair value, but it does not stipulate when fair value can or should be used.