International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
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entity, it would not normally affect the fair value of an entity’s interests in an
unconsolidated structured entity.
Disclosure of interests in other entities 929
6.3.6
Disclosure of funding difficulties
Disclosure of ‘any difficulties’ that a structured entity has experienced in financing its
activities during a reporting period could potentially be wide-ranging. In practice, we
believe that such a disclosure is likely to focus on issues of debt (including short-term
commercial paper) and equity securities that have failed either in whole or in part.
6.3.7
Disclosure of the forms of funding of an unconsolidated structured
entity
This disclosure appears to refer to the overall funding of the structured entity including
forms of funding in which the reporting entity has not participated. A tabular
presentation would appear to be the most appropriate way of making this disclosure.
References
1
IASB Update, IASB, February 2010, pp.1-2.
3
IFRIC Update, January 2015, p.6.
2
Effect analysis: IFRS
10 – Consolidated 4
IFRIC Update, January 2015, p.7.
Financial Statements and IFRS 12 – Disclosure
5
IFRIC Update, January 2015, p.7.
of Interests in Other Entities, IASB, September
2011, p.11.
930 Chapter
13
931
Chapter 14
Fair value measurement
1 INTRODUCTION AND BACKGROUND .......................................................... 939
1.1
Introduction .......................................................................................................... 939
1.2
Overview of IFRS 13 ........................................................................................... 940
1.3
Objective of IFRS 13 ............................................................................................ 942
2 SCOPE ............................................................................................................ 943
2.1
Items in the scope of IFRS 13 ............................................................................ 943
2.1.1
Fair value disclosures .......................................................................... 944
2.1.2 Measurements
based on fair value ................................................... 945
2.1.3 Short-term
receivables and payables .............................................. 945
2.2
Scope exclusions .................................................................................................. 945
2.2.1
Share-based payments ....................................................................... 945
2.2.2 Lease
transactions
...............................................................................
946
2.2.3 Measurements
similar to fair value .................................................. 946
2.2.4
Exemptions from the disclosure requirements of IFRS 13 .......... 947
2.3
Present value techniques .................................................................................... 947
2.4
Fair value measurement exceptions and practical expedients in
other standards ...................................................................................................... 947
2.4.1
Fair value measurement exceptions ................................................. 947
2.4.2
Practical expedient for impaired financial assets carried at
amortised cost ...................................................................................... 948
2.5
Measurement exceptions and practical expedients within IFRS 13 ............ 948
2.5.1
Practical expedients in IFRS 13 ........................................................ 948
2.5.2
Measurement exception to the fair value principles for
financial instruments ........................................................................... 950
3 DEFINITIONS ................................................................................................. 950
4 THE FAIR VALUE FRAMEWORK ................................................................... 952
4.1
Definition of fair value ........................................................................................ 952
4.2
The fair value measurement framework ......................................................... 953
932 Chapter
14
5 THE ASSET OR LIABILITY ............................................................................. 955
5.1
The unit of account .............................................................................................. 955
5.1.1
Unit of account and P×Q .................................................................... 956
5.1.2
Unit of account and the portfolio exception.................................. 958
5.1.3
Unit of account versus the valuation premise ............................... 960
5.1.4
Does IFRS 13 allow fair value to be measured by
reference to an asset’s (or liability’s) components? ....................... 960
5.2
Characteristics of the asset or liability ............................................................. 961
5.2.1
Condition and location ........................................................................ 961
5.2.2 Restrictions
on
assets or liabilities ................................................... 962
5.2.2.A
In determining the fair value of a restricted
security, is it appropriate to apply a constant
discount percentage over the entire life of the
restriction? ........................................................................ 964
6 THE PRINCIPAL (OR MOST ADVANTAGEOUS) MARKET ............................. 964
6.1
The principal market .......................................................................................... 965
6.1.1
Can an entity have more than one principal market for
the same asset or liability? ................................................................. 966
6.1.2
In situations where an entity has access to multiple
markets, should the determination of the principal market
be based on entity-specific volume and activity or
market-based volume and activity? .................................................. 967
6.2
The most advantageous market ........................................................................ 968
7 MARKET PARTICIPANTS .............................................................................. 969
7.1
Characteristics of market participants ............................................................ 969
7.2 Market
participant assumptions ....................................................................... 970
8 THE TRANSACTION ...................................................................................... 973
8.1<
br />
Evaluating whether there has been a significant decrease in the
volume and level of activity for an asset or liability ...................................... 974
8.1.1
Can a market exhibit a significant decrease in volume or
level of activity and still be considered active? .............................. 976
8.2
Identifying transactions that are not orderly .................................................. 977
8.2.1
Are all transactions entered into to meet regulatory
requirements or transactions initiated during bankruptcy
assumed to be not orderly? ................................................................. 978
8.2.2
Is it possible for orderly transactions to take place in a
‘distressed’ market? ................................................................................ 979
8.3
Estimating fair value when there has been a significant decrease in
the volume and level of activity ......................................................................... 979
8.3.1
Assessing the relevance of observable data ................................... 980
Fair value measurement 933
8.3.2
Selection and use of valuation techniques when there has
been a significant decrease in volume or level of activity ........... 981
9 THE PRICE ..................................................................................................... 984
9.1
Transaction costs ................................................................................................. 984
9.1.1
Are transaction costs in IFRS 13 the same as ‘costs to sell’
in other IFRSs? ..................................................................................... 985
9.1.2
Transaction costs in IFRS 13 versus acquisition-related
transaction costs in other IFRSs ....................................................... 985
9.2
Transportation costs ........................................................................................... 986
10 APPLICATION TO NON-FINANCIAL ASSETS ............................................... 986
10.1 Highest and best use ............................................................................................ 987
10.1.1
Highest and best use: determining what is legally
permissible ............................................................................................ 989
10.1.2
Highest and best use versus current use ......................................... 990
10.1.3
Highest and best use versus intended use (including
defensive value) .................................................................................... 991
10.2 Valuation premise for non-financial assets .................................................... 992
10.2.1
Valuation premise – stand-alone basis ........................................... 992
10.2.2 Valuation premise – in combination with other assets
and/or liabilities .................................................................................... 993
10.2.3 How should associated liabilities be considered when
measuring the fair value of a non-financial asset? ........................ 995
10.2.4 Unit of account versus the valuation premise ............................... 995
11 APPLICATION TO LIABILITIES AND AN ENTITY’S OWN EQUITY ................ 996
11.1
General principles ................................................................................................ 997
11.1.1
Fair value of a liability ......................................................................... 997
11.1.2
Fair value of an entity’s own equity ................................................. 998
11.1.3
Settlement value versus transfer value ............................................ 998
11.2 Measuring the fair value of a liability or an entity’s own equity
when quoted prices for the liability or equity instruments are not
available ................................................................................................................. 999
11.2.1
Liabilities or an entity’s own equity that are held by other
parties as assets ..................................................................................... 999
11.2.2
Liabilities or an entity’s own equity not held by other
parties as assets ................................................................................... 1003
11.2.2.A
Use of present value techniques to measure
fair value for liabilities and an entity’s own
equity instruments not held by other parties as
assets ................................................................................ 1003
11.2.2.B
Consideration of an entry price in measuring a
liability or entity’s own equity not held as an
asset ................................................................................. 1006
934 Chapter
14
11.3 Non-performance risk ...................................................................................... 1006
11.3.1
Liabilities issued with third-party credit enhancements ........... 1009
11.3.1.A
Do the requirements of IFRS 13 regarding
third-party credit enhancements in a fair value
measurement apply to liabilities other than
debt? .................................................................................. 1011
11.3.2
Does IFRS 13 require an entity to consider the effects of
both counterparty credit risk and its own credit risk when
valuing its derivative transactions?................................................... 1011
11.3.3
How should an entity incorporate credit risk into the
valuation of its derivative contracts? .............................................. 1012
11.3.3.A
How do credit adjustments work? .............................. 1012
11.3.3.B Valuation
methods
.........................................................
1014
11.3.3.C Data
challenges
............................................................... 1015
11.3.4
Does the existence of master netting agreements and/or
CSAs eliminate the need to consider an entity’s own
credit risk when measuring the fair value of derivative
liabilities? .............................................................................................. 1017
11.3.4.A
Portfolio approaches and credit mitigation
arrangements .................................................................. 1017
11.3.4.B Portfolio-level
credit adjustments .............................. 1018
11.4 Restrictions preventing the transfer of a liability or an entity’s own
equity ..................................................................................................................... 1019
11.5 Financial liability with a demand feature ...................................................... 1020
12 FINANCIAL ASSETS AND LIABILITIES WITH OFFSETTING POSITIONS .... 1020
12.1 Criter
ia for using the portfolio approach for offsetting positions ............ 1020
12.1.1
Accounting policy considerations ................................................... 1021
12.1.2 Presentation
considerations
.............................................................1022
12.1.3
Is there a minimum level of offset required to use the
portfolio approach? ............................................................................1022
12.1.4
Can Level 1 instruments be included in a portfolio of
financial instruments with offsetting risks when
calculating the net exposure to a particular market risk? ........... 1023
12.2 Measuring fair value for offsetting positions ................................................ 1024
12.2.1
Exposure to market risks .................................................................. 1027
12.2.2
Exposure to the credit risk of a particular counterparty ........... 1028
13 FAIR VALUE AT INITIAL RECOGNITION .................................................... 1028
13.1 Exit price versus entry price ........................................................................... 1028
13.1.1
Assessing whether the transaction price equals fair value
at initial recognition .......................................................................... 1028
13.2 Day one gains and losses .................................................................................. 1029
Fair value measurement 935
13.2.1
Day one losses for over-the-counter derivative
transactions ......................................................................................... 1030
13.2.2
Day one gains and losses when entry and exit markets for
the transaction are deemed to be the same .................................. 1031
13.3 Related party transactions ................................................................................ 1031
14 VALUATION TECHNIQUES ......................................................................... 1032
14.1 Selecting appropriate valuation techniques .................................................. 1032
14.1.1
Single versus multiple valuation techniques ................................. 1033