IASB proposed consolidation of Fair Value Measurements under new section of IFRS for SME Accounting Standard-Section 12: “Fair Value Measurement”


  • This update is prepared for proposed new section in IASB’s second comprehensive review.
  • Section 12 – Fair Value Measurement is a newly introduced section. The previous requirements of Section 12 – Other Financial Statement Issues have been included as Part-II of the revised Section 11 – Financial Instruments.
  • This section applies when another section requires or permits fair value measurements or disclosures about fair value measurement except-
  1. Share based payment option under Section
  2. Lease transaction within the ambit of Section 20

Proposed Section 12

  • The definition of ‘fair value’ is proposed to be aligned with that defined in IFRS 13 – Fair Value Measurement wherein fair value is the estimated price at which an orderly transaction (not a forced transaction) to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions. Previously, reference to date of measurement was not given in the definition.
  • In order to measure the fair values of the assets and liabilities, fair value hierarchy is established by clearly defining three levels of the hierarchy. Also, reference to the level(s) of hierarchy used in measurement of the fair value is made in the disclosure requirements.
  1. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
  2. Level 2 inputs include quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active
  3. Level 3 inputs are unobservable inputs for the asset or liability. An entity shall develop unobservable inputs using the best information available in the circumstances, which might include the entity’s own data.
  • A new assumption regarding fair value measurement is introduced whereby it is assumed that the transaction to sell the asset or transfer the liability would take place in-
  1. the principal market for the asset or liability
  2. in absence of the above, in the most advantageous market

With this assumption, possibility of fair value measurement of assets and liabilities in non-principal and non-advantageous markets has been removed.

  • Principal market refers to the market with the greatest volume and level of activity for the asset and liability while the Most Advantageous Market is the market in which the maximum amount will be received from the sale of asset after taking into account transaction cost and transportation cost.

SW Remarks:
In the aforementioned update, an attempt has been made to summarize the definition, terminologies and the important assumptions of the newly proposed Section 12: “Fair Value Measurement”. The exposure draft is still open for comments till 7th March, 2023 at ‘ifrs.org”

Bijhon Bordoloi, Audit Associate, SW India

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