Question

What are the rationales behind the issuance of the MFRS Fair Value Measurement?

Answer 1

IFRS 13, Fair Value Measurement defines fair value, establishes a framework for measuring fair value and requires significant disclosures relating to fair value measurement. The International Accounting Standards Board (the Board) wanted to enhance disclosures for fair value in order that users could better assess the valuation techniques and inputs that are used to measure fair value.

Historically, fair value has had a different meaning depending on the context and usage. The Board’s definition of 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. Basically it is an exit price. Consequently, fair value is focused on the assumptions of the market place, is not entity specific and so takes into account any assumptions about risk. This means that fair value is measured using the same assumptions used by market participants and takes into account the same characteristics of the asset or liability. Such conditions would include the condition and location of the asset and any restrictions on its sale or use.

This can be termed as an explanation for the issuance of IFRS 13.

(THE WRITER CAN SKIP A FEW POINTS IF HE/SHE THINKS THAT THIS IS A LENGTHY ANSWER)