IFRS 13 Fair Value Measurement: Key Requirements and Examples

When IFRS 13 applies

The standard applies when another IFRS requires or permits fair value measurements or disclosures about fair value, and to measurements based on fair value, such as fair value less costs to sell. The related standards where it is used most often are IAS 40 Investment Property, IAS 41 Agriculture and IFRS 9 Financial Instruments.

There are exceptions where other standards govern: IFRS 13 does not specify the measurement and disclosure requirements for share-based payment transactions, leases or impairment of assets, nor does it establish disclosure requirements for fair values related to employee benefits and retirement plans.

The definition: an exit price

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 is an exit price, not the price at which the company would buy the asset.

The measurement uses the assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. As a result, the company's intention to hold an asset or settle a liability does not affect the measurement: fair value is a market-based amount, not an entity-specific one.

What to consider in the measurement

• The asset or liability itself: its condition, location and any restrictions on sale.
• The principal (or most advantageous) market in which an orderly transaction would take place. For many assets in Uzbekistan the principal market is domestic, but for commodities and currency instruments it may be foreign.
• For a non-financial asset, its highest and best use and whether it is used in combination with other assets or on a stand-alone basis. For example, market participants may value a plot under a warehouse in a city centre on the basis of residential development.
• The assumptions that market participants would use when pricing.

The fair value hierarchy

IFRS 13 groups measurement inputs into three levels. Level 1 is preferred where available.

• Level 1 — unadjusted quoted prices for identical assets and liabilities in active markets. Locally, this means, for example, liquid shares and bonds traded regularly on the exchange.
• Level 2 — other observable inputs: quoted prices in active markets for similar assets, or quoted prices for identical assets in markets that are not active. Example: an office valued using prices of recent transactions in similar properties in the same district, adjusted for floor area and condition.
• Level 3 — unobservable inputs that the company develops using the most complete information available when there is little or no market activity for the asset at the measurement date. Example: a stake in a private LLC valued with a discounted cash flow model based on management forecasts.

Example: a stake in a private company

A holding company owns 15% of a private LLC and measures the stake at fair value through profit or loss under IFRS 9. There are no exchange quotes and there were no comparable transactions during the year. The valuer builds a discounted cash flow model: a five-year forecast, a discount rate reflecting country risk and a discount for the non-controlling nature of the stake.

The rate, forecast and discount are unobservable inputs, so the measurement is Level 3. The financial statements must disclose the technique and inputs and, because the measurement is updated regularly, its effect on profit or loss for the period. Had there been a transaction in a stake in the same LLC between independent parties during the year, its price would have become an observable reference point and could have moved the measurement to Level 2.

Disclosures

The standard requires extensive disclosures so that users of the financial statements can assess how the figures were arrived at.

• the valuation techniques and inputs used to measure fair values;
• the hierarchy level to which each measurement belongs;
• for recurring measurements using significant Level 3 inputs (for example, investment property), the effect of the measurements on profit or loss or other comprehensive income for the period.

Common mistakes in practice

• Using cadastral or carrying value instead of fair value. Cadastral value serves tax purposes and does not reflect a transaction price between market participants.
• Entity-specific measurement: using the company's plans instead of market participants' assumptions.
• Classifying as Level 2 measurements whose key inputs are in fact unobservable.
• Missing Level 3 disclosures — a frequent auditor finding on first-time adoption of IFRS.
• For companies moving to IFRS, including public interest entities that keep IFRS accounts under Presidential Resolution PP-282 of 15.09.2025, fair value measurements usually appear for the first time when the opening balance sheet is converted.