Know Your Rights!!

Prior to IFRS 13: Fair Value Measurement standard, fair value was defined as “an amount exchanged between knowledgeable willing parties at an arm’s length transaction”. As per this definition fair value is the price at which parties are ready to "enter" into the transaction. The notion was therefore "entry price" The change in IFRS 13 of the definition of fair value concentrates on exit price. The new 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." It means that an entity shall look at how the market participants will price the asset or liability at a measurement date. The notion here is now the "exit price". The objective of IFRS 13 was to define fair value in a single IFRS and to set out disclosures about fair value measurements. What must an entity do to calculate Fair Value? determ...

As a part of the disclosure requirements for fair value measurements, an entity should classify the financial instruments measured at fair value using a ‘fair value hierarchy’ that reflects the significance of the inputs used in making the measurements. IFRS 7 consist of fair value hierarchy in its required disclosures to increase the comparability and consistency. A new standard “Fair Value Measurements” by IASB is expected to come by April 2011 on the lines of Statement No. 157 or ASC 820 of the US GAAP as a part of joint project of FASB and IASB. As per existing IFRS 7, the fair value hierarchy has three different levels: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. A quoted price in an active market provides the most reliable evidence of fair value and should be used to measure fair value whenever available, except as follows: In some situ...