IFRS 13 Fair Value Measurement

IFRS Foundation
2
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IFRS Foundation
Agenda
Part I: context and scope
Part II: measurement of fair value
Part III: valuation approaches and techniques
Part IV: disclosures
Part V: effective date and transition

3
IFRS Foundation
Part I
Context and scope
IFRS Foundation
Part I: context and scope
Why IFRS 13 is necessary
Scopewhen IFRS 13 applies
Scopewhat IFRS 13 does not apply to

5
IFRS Foundation
Before IFRS 13dispersed and
conflicting guidance
6
IAS 40 IAS 39/IFRS 9 IAS 41 IAS 36 Etc.
IFRS 13
Single source of measurement guidance
Clear measurement objective
Consistent and transparent disclosures about fair
value
Topic 820 in US GAAP (codified SFAS 157)
IFRS Foundation

The previous definition of fair value
7
Fair value definition Its weaknesses
The amount for which an
asset could be
exchanged
or a liability settled
between knowledgeable,
willing parties in an arms
length transaction.
It did not specify whether an entity
is buying or selling the asset
?
It was unclear about what settling
meant because it did not refer to
the creditor
It was unclear about whether it was
market-based
It did not state explicitly when the
exchange or settlement takes place
IFRS Foundation
When does IFRS 13 apply?
When another IFRS requires or permits fair value
measurements or disclosures about fair value
measurements
IFRS 13 also applies to measurements, such as fair
value less cost to sell, based on fair value or
disclosures about those measurements

8
IFRS Foundation
When does IFRS 13 apply?
9
For example, if you own a biological asset
IAS 41
A biological asset shall be
measured on initial recognition and
at the end of each reporting period
at its fair value less cost to sell
IFRS 13
What
and
when
How
IFRS Foundation
What does IFRS 13 not apply to?
10
Excluded from the
scope
IFRS 2 and IAS 17
Disclosures in IFRS 13
not required for
Plan assets (IAS 19)
Retirement benefit plan
investments (IAS 26)
Assets for which recoverable
amount is fair value less cost
of disposal (IAS 36)
Not required for
measurement similar to
fair value
IAS 2 (net realisable value)
IAS 36 (value in use)
IFRS Foundation
Part II
Measurement of fair value
IFRS Foundation
Part II: measurement of fair value
Definition of fair value and measurement principles
Considerations specific to non-financial assets
Considerations specific to liabilities



12
IFRS Foundation
Definition of fair value and
measurement principles
IFRS Foundation

IFRS 13s new definition of fair value
14
New fair value definition Comments
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 specifies that the entity is selling
the asset
It refers to the transfer of a liability
It is clear it is market-based
It states explicitly when the sale or
transfer takes place
It is not a forced or distressed sale
IFRS Foundation
Fair value at initial recognition
Transaction price (entry price) = Fair value
(exit price) unless:
Transaction takes place in different
markets
Transactions are for different units of
account
Seller is distressed or forced
Transactions are between related parties
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IFRS Foundation
A hypothetical transaction price
16
Market
participant
buyer
Market
participant
seller
Fair value
of
Principal market (or most
advantageous market)
an asset
a liability

at the
measurement
date
IFRS Foundation
Who would transact for the item?
Market participants are buyers and sellers in the
principal (or most advantageous) market who are:





Market participants act in their economic best
interest
Maximise the value of the asset
Minimise the value of the liability





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Independent Knowledgeable
Able to enter into a
transaction
Willing to enter into
a transaction
IFRS Foundation
What is being measured?
Unit of account
IAS 41: A biological asset shall be measured
at its fair value less costs to sell
Characteristics
Which characteristics would a market participant
buyer take into account?
age and remaining economic life
condition
location
restrictions on use or sale
contractual terms
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IFRS Foundation
Where would the transaction take
place?
In most cases, these markets will be the same
arbitrage opportunities will be competed away
The entity must have access to the principal (or most
advantageous) market
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Fair value is the price in the
Principal market
Or, if no principal market, the
most advantageous market
The market with the greatest
volume and level of activity for
the asset or liability
The market that maximises the
amount that would be received to
sell the asset and minimises the
amount that would be paid to
transfer the liability
IFRS Foundation
Transaction and transport costs
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Description Included in fair value?
Transaction
costs
The costs to sell the asset
or transfer the liability that
are directly attributable to
the disposal of the asset
or the transfer of the
liability
No (Although they are
considered in the
assessment of which
market is most
advantageous)
They are a characteristic of
the transaction, not of the
asset or liability
Transport
costs
The costs that would be
incurred to transport an
asset from its current
location to its exit market
Yes Transport changes a
characteristic of the asset
(its location)
IFRS Foundation
How do we arrive at a market-based
measurement?
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Is there a quoted price in an active market for an identical asset or liability?
Use this quoted price to
measure fair value (Level 1)
Replicate a market price through a
valuation technique* (using observable
+

and unobservable inputs: Levels 2 and 3)
No significant
unobservable
(Level 3) inputs

=
Level 2 measurement
Use of significant
unobservable
(Level 3) inputs

=
Level 3 measurement
Must use without adjustment
Yes No
* Valuation techniques include the
market approach, income approach
and cost approach.
+ Maximise the use of relevant observable inputs and minimise the use of unobservable
inputs. Observable inputs include market data (prices and other information that is publicly
available).
Unobservable inputs include the entitys own data (budgets, forecasts), which must be
adjusted if market participants would use different assumptions.
IFRS Foundation



Considerations specific to
non-financial assets
IFRS Foundation
Highest and best use
Fair value assumes a non-financial asset is
used by market participants at its highest and
best use
the use of a non-financial asset by market
participants that maximises the value of
the asset
physically possible
legally permissible
financially feasible
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IFRS Foundation
Highest and best use continued
Highest and best use is determined from the
perspective of market participants, even if the entity
intends a different use.
However, an entitys current use of a non-financial
asset is presumed to be its highest and best use
unless market or other factors suggest that a
different use by market participants would maximise
the value of the asset.
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IFRS Foundation
Highest and best use continued
Highest and best use is usually (but not always) the
current use
if for competitive reasons an entity does not
intend to use the asset at its highest and best
use, the fair value of the asset should still be
measured assuming its highest and best use by
market participants (defensive value)
Does not apply to financial instruments or liabilities

25
IFRS Foundation
Valuation premise
A non-financial asset either:
provides maximum value through its use in combination
with other assets and liabilities as a group
is its value influenced by it being operated with other
assets?
an example: equipment used in production facility
market participants are assumed to hold
complementary assets
provides maximum value through its use on a stand-alone
basis
is its value independent of its use with other assets?
an example: a vehicle or an investment property
Does not apply to financial instruments or liabilities

26
IFRS Foundation



Considerations specific to liabilities
IFRS Foundation
Transfer notionliabilities and an
entitys own equity instruments
Fair value assumes a transfer to a market
participant who takes on the obligation. The transfer
assumes:
28
Liability or equity remains outstanding
Restrictions on transfer are already reflected in
inputs; no additional adjustment required
Fair value of a liability reflects the effect of
non-performance risk
IFRS Foundation
Decision treeliability measurement
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Is there an
observable market
price to transfer the
instrument?
Does somebody hold the
corresponding asset?
Fair value =
observable market
price of instrument
Fair value = fair value of
the corresponding asset
Is there an observable
market price for the
instrument traded as an
asset?
Fair value = another
valuation
technique*
No Yes
Yes No
Yes
Fair value =
observable market
price of asset
No
Fair value =
another valuation
technique
* Using the
perspective of a
market participant that
owes the liability or
issued the claim on
equity
Level 2 or 3
IFRS Foundation
No corresponding asset
Two possible ways to approach it:
1. Use the future cash flows that a market participant
would expect to incur in fulfilling the obligation,
including the compensation that a market
participant would require for taking on the
obligation. Such compensation includes:
the cost to fulfil the obligation plus a return for
undertaking the activity; and
a risk premium to compensate for the risk that
actual cash flows might differ from expected
cash flows.
30
IFRS Foundation
No corresponding asset continued
2. Use the amount that a market participant would
receive to enter into or issue an identical liability or
equity instrument.

31
IFRS Foundation
Part III
Valuation approaches and
techniques
IFRS Foundation
Part III: valuation techniques
Valuation approaches
Valuation techniquesillustration for unquoted
equity instruments
Bid and ask spread, premiums and discounts
Measuring the fair value of portfolios

33
IFRS Foundation



Valuation approaches
IFRS Foundation
Valuation approaches
Market approach
prices from market transactions for identical or
similar assets or liabilities, for example:
using market multiples (eg of earnings or cash flows)
from a set of comparable companies and applying
those multiples to the earnings or cash flows of the
company being valued


35
Measure fair value using valuation techniques that
are appropriate in the circumstances and for which
sufficient data are available.
IFRS Foundation
Valuation approaches continued
Cost approach
the cost to acquire or reconstruct a substitute
asset of comparable utility, adjusted for physical,
functional and economic obsolescence
often used for PP&E and some intangibles
Income approach
converts future amounts (eg cash flows) to a
single current discounted amount, for example:
present values
option pricing models
multi-period excess earnings method


36
IFRS Foundation
Selecting a valuation approach
37
L
e
v
e
l

2

L
e
v
e
l

1

L
e
v
e
l

3

Market approach
Market price is available
Price needs
adjustment
Observable
inputs
Price for
identical item
Must be used
without
adjustment
Cost approach
(eg replacement cost)
Income approach
(eg discounted cash flow)

Observable
inputs
Rare
Observable
inputs
Rare
Price needs
adjustment
Unobservable
inputs
Unobservable
inputs
Unobservable
inputs
Not directly
income-producing
No identical market price
Price needs adjustment
Directly identifiable cash
flows
IFRS Foundation



Valuation techniquesillustration
for unquoted equity instruments

IFRS Foundation
Measuring the fair value of unquoted
equity instruments
Scope of this particular illustration:
Unquoted equity instruments not quoted in an
active market
Non-controlling interest within the scope of IFRS 9
A range of valuation techniques can be used.
Judgement is involved
in the selection of a valuation technique (given
specific facts and circumstances, some
techniques might be more appropriate than
others)
when applying the valuation technique

IFRS Foundation
Valuation approaches and techniques
Valuation
approaches
Valuation techniques
Market approach Transaction price paid for an identical or
a similar instrument of an investee

Comparable company valuation multiples

Income approach Discounted cash flow (DCF) method

Dividend discount model (DDM)

Constant-growth DDM

Capitalisation model

A combination of
approaches may be
used
Adjusted net asset method
40
IFRS Foundation
Market approach
Uses prices and other relevant information that have
been generated by market transactions that involve
identical or comparable assets.
Techniques that are most commonly referred to for
valuing unquoted equity instruments are related to the
data sources that they use:
transaction price paid for an identical or a similar
instrument of an investee
comparable company valuation multiples derived from
quoted prices (ie trading multiples) or from prices paid in
transactions such as mergers and acquisitions (ie
transaction multiples)
41
IFRS Foundation
Valuation multiples
Valuation basis:
Equity value
Enterprise value (EV)
Multiple =
()


Performance measures:
EBITDA, EBIT, EBITA
Earnings, ie net income (E)
Book value, ie value of an entitys shareholders
equity (B)
Revenue

42
IFRS Foundation
Fair value measurement using
valuation multiplesfour steps
Identify comparable company peers.
Select the performance measure that is most
relevant to assessing the value for the investee.
Apply the appropriate valuation multiple to the
relevant performance measure of the investee to
obtain an indicated fair value of the investees
equity value or the investees enterprise value.
Make appropriate adjustments to ensure
comparability (eg non-controlling interest discount).
43
IFRS Foundation
Commonly used valuation multiples
Earnings multiples commonly used when valuing:
established business with an identifiable stream of
continuing and stable earnings:
, ,
(where P is entitys market capitalisation)
Book value multiples: where entities use their equity
capital bases to generate earnings (eg businesses
that have not yet generated positive earnings)

Revenue multiples:
44
IFRS Foundation
Exampleapplying comparable
company peers multiples
Investor has 5% non-controlling interest in Entity J
(private company) and measures it at fair value.
Financial information about Entity J
Normalised EBITDA = CU*100 million
Debt at FV = CU350 million
Six comparable public company peers (same
business and geographical region)
EV/EBITDA multiple was chosen because there are
differences in capital structure and depreciation
policies between J and peers.
No relevant non-operating items.

45
IFRS Foundation
* CU = currency units
Exampleapplying comparable
company peers multiples continued
Step 1 Identify comparable peers
The investor has selected six comparable public
company peers that operate in the same business
and geographical region as Entity J.
Step 2 Select the performance measure that is
most relevant to assessing the value for the investee.
The investor has chosen the EV/EBITDA multiple to
value Entity J because there are differences in the
capital structure and depreciation policies between
Entity Js comparable company peers and Entity J.
46
IFRS Foundation
Exampleapplying comparable
company peers multiples continued
Step 3 Apply valuation multiple to obtain fair value
Trading multiples of the comparable public company
peers are:





47
Upon further analysis, these entities are
considered comparable (ie similar risk,
growth and cash
flow-generating profiles
IFRS Foundation
Exampleapplying comparable
company peers multiples continued
Step 3 continued
Investor selected average multiple (ie 8.5x)
because it appropriately reflects Entity Js
characteristics relative to its peers.
= = 100 8.5 =
850
= @ =
850350 = 500

48
IFRS Foundation
Exampleapplying comparable
company peers multiples continued
Step 4 Make appropriate adjustments to ensure
comparability
No non-controlling interest discount is required
because the valuation multiples used to
measure the fair value of Entity J were derived
from the trading prices of the comparable public
company peers and are consistent with holding
a five per cent non-controlling equity interest in
Entity J.

49
IFRS Foundation
Exampleapplying comparable
company peers multiples continued
Step 4 continued
Discount for the lack of liquidity assessed to
be 30% on the basis of relevant studies
applicable in the region and industry as well as
on the specific facts and circumstances.
Therefore
= 500 1 0.3 = 350
And the fair value of 5% non-controlling interest
is CU17.5m (ie CU350m0.05)
50
IFRS Foundation
Income approach
Income approach converts future amounts
(eg cash flows) to a single current (ie
discounted) amount.
Discounted Cash Flow method (DCF)
Dividend Discount Model (DDM)
Constant growth DDM
Capitalisation model
51
IFRS Foundation
Enterprise value
Enterprise value = discounted FCFF @ WACC
FCFF (Free Cash Flow to Firm): a common definition among
others cash flow from assets before any debt payments but
after making reinvestments that are needed for future growth
or the cash flows available to all capital providers (debt/equity)
WACC: discount rate that reflects the cost of raising both debt
and equity financing, in proportion to their use (ie the
Weighted Average Cost of Capital)
= 1 +&
D&A = Depreciation and amortisation
RR = Reinvestment requirements
NWC = Net working capital
t = income tax rate
52
IFRS Foundation
WACC: cost of debt capital
component and computation
=

( +)
(1 )

( +)

Computing WACC requires cost of equity capital
and cost of debt capital (

respectively) and
market participants expectations of the investees
long-term optimal capital structure
There are a number of approaches for estimating

Based on recent borrowings
By reference to an actual or synthetic credit
rating and default spread

53
IFRS Foundation
WACC: cost of equity capital
component
Cost of equity capital (

) is often estimated using

CAPM:

where:

is the expected rate of return on a risk-free asset

is the required market rate of return on a fully

diversified portfolio
is the measure of the systematic risk for the
individual shares


54
IFRS Foundation
ExampleDCF method using
enterprise value
An investor has 5% non-controlling interest in Entity
R.
FCFF of Y1 to Y5 of CU100m and terminal value
from Y5 onwards is CU1,121.8m (assumption:
inflation is offset by market shrinkange, no growth in
nominal terms)
WACC 8.9%
Fair value of debt = CU240m
Non-controlling interest discount CU8m
Discount for the lack of liquidity CU4.09m
55
IFRS Foundation
ExampleDCF method using
enterprise value continued
56
IFRS Foundation
ExampleDCF method using
enterprise value continued
57
IFRS Foundation
A combination of approaches
adjusted net asset method
Involves deriving the fair value of an investees equity
instruments by reference to the fair value of its assets
and liabilities (recognised and unrecognised).
Appropriate for an investee whose value is mainly
derived from the holding of assets (rather than from
deploying those assets as part of a broader business).
Requires measurement of the fair value of the
individual assets and liabilities.
Non-controlling interest and liquidity discounts may be
applicable.
58
IFRS Foundation



Bid and ask spread,
premiums and discounts
IFRS Foundation
Pricing within a bid-ask spread
60
The price at
which the dealer
will
For an asset, the
non-dealer
entitys
For a liability, the
non-dealer
entitys
Bid price
buy exit price entry price
Ask (offer) price
sell entry price exit price
IFRS Foundation
Pricing within a bid-ask spread continued
If an asset or a liability measured at fair value has a
bid and an ask price, use the price within the bid-
ask spread that is most representative of fair value
Mid-market pricing or other pricing conventions can
be used as a practical expedient for fair value
measurements within a bid-ask spread if these
conventions do not contravene the principle

61
IFRS Foundation
Premiums and discounts
Any premium or discount applied must be
consistent with:
characteristics of asset or liability
the unit of account in the IFRS requiring fair
value
No block discounts
an adjustment to a quoted price for reduction
that would occur if a market participant were to
sell a large holding of assets or liabilities in one
or a few transactions

62
IFRS Foundation



Measuring the fair value of
portfolios
IFRS Foundation
IFRS 13 permits an entity to measure a group of
financial assets and financial liabilities on the basis of
the net risk exposure to either market risks or credit
risks.
This practice was already allowed in IAS 39/IFRS 9
The exception was permitted because:
derivatives often cannot be sold, but management
can mitigate risk exposure by entering into an
offsetting position
portfolio composition is entity-specific (depends on
entitys risk preferences)
64
Portfolios of financial instruments
IFRS Foundation
Portfolios of financial instruments
continued
Conditions that need to be met:
Entity must have documented risk management strategy
The entity provides information on the basis of the net risk
exposure to key management personnel
Only for portfolios of instruments measured at FV
Accounting policy decision
Does not affect presentation in IAS 32.
Allocations shall be performed on a reasonable and
consistent basis.
Portfolio-level adjustments may need to be allocated to the
unit of account for presentation purposes.

65
IFRS Foundation
If there are offsetting market risks:
can apply bid-ask spread to net open risk
position
offsetting risks must be substantially the same
duration of instruments leading to exposure to
market risk must be substantially the same

66
Market risk: the risk that the price will fluctuate
because of changes in market prices
(currency risk, interest rate risk and other
price risk).
Portfolios of financial instruments
continued
IFRS Foundation
If the entity is exposed to the credit risk of a
particular counterparty, an entity shall include the
effect of:
its net exposure to the credit risk of the counterparty.
the counterpartys net exposure to its credit risk.
any existing arrangements that mitigate credit risk
exposure if market participants expect that such
arrangements would be legally enforceable in the event of
default.

67
Credit risk: the risk the entity or the
counterparty will not pay or otherwise perform
as agreed.
Portfolios of financial instruments
continued
IFRS Foundation
Part IV: Disclosures
IFRS Foundation
General
Fair value at end of reporting period
Level in hierarchy
Transfers between levels
Valuation techniques and inputs used
If highest and best use is different from
current use
69
IFRS Foundation
General continued
Disclosures also required for unrecognised
amounts (ie that are only disclosed) or
amounts recognised using a different
measure (eg amortised cost)
eg financial asset at amortised cost, but
IFRS 7 requires disclosure of assets fair
value
Quantitative disclosures in a table unless
another format is better

70
IFRS Foundation
General continued
71






Illustrative Example 15 - Fair values at the end of the
reporting period and level of the fair value hierarchy
for recurring fair value measurements
IFRS Foundation
31/12/X9
Quoted prices in
active markets
for identical
assets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total gains
(losses)
Recurring fair value measurements
Trading equity securities
(a)
:
Real estate industry 93 70 23
Oil and gas industry 45 45
Other 15 15
Total trading equity securities 153 130 23
Other equity securities
(a)
:
Financial services industry 150 150
Healthcare industry 163 110 53
Energy industry 32 32
Private equity fund investments
(b)
25 25
Other 15 15
Total other equity securities 385 275 110
Debt securities:
Residential mortgage-backed securities 149 24 125
Commercial mortgage-backed securities 50 50
Collateralised debt obligations 35 35
Risk-free government securities 85 85
Corporate bonds 93 9 84
Total debt securities 412 94 108 210
Hedge fund investments:
Equity long/short 55 55
Global opportunities 35 35
High-yield debt securities 90 90
Total hedge fund investments 180 90 90
Derivatives:
Interest rate contracts 57 57
Foreign exchange contracts 43 43
Credit contracts 38 38
Commodity futures contracts 78 78
Commodity forward contracts 20 20
Total derivatives 236 78 120 38
Investment properties:
CommercialAsia 31 31
CommercialEurope 27 27
Total investment properties 58 58
Total recurring fair value measurements 1,424 577 341 506
Non-recurring fair value measurements
Assets held for sale
(c)
26 26 (15)
Total non-recurring fair value measurements 26 26 (15)
(CU in millions)
Fair value measurements at the end of the
reporting period using
Description
(a)
On the basis of its analysis of the nature, characteristics and risks of the securities, the entity has determined that presenting them by
industry is appropriate.
(b)
On the basis of its analysis of the nature, characteristics and risks of the investments, the entity has determined that presenting them
as a single class is appropriate.
(c)
In accordance with IFRS 5, assets held for sale with a carrying amount of CU35 million were written down to their fair value of CU26
million, less costs to sell of CU6 million (or CU20 million), resulting in a loss of CU15 million, which was included in profit or loss for the
period.
(Note: A similar table would be presented for liabilities unless another format is deemed more appropriate by the entity.)
General continued
72
31/12/X9
Quoted prices in
active markets
for identical
assets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total gains
(losses)
Recurring fair value measurements
Trading equity securities
(a)
:
Real estate industry 93 70 23
Oil and gas industry 45 45
Other 15 15
Total trading equity securities 153 130 23
Other equity securities
(a)
:
Financial services industry 150 150
Healthcare industry 163 110 53
Energy industry 32 32
Private equity fund investments
(b)
25 25
Other 15 15
Total other equity securities 385 275 110
Debt securities:
Residential mortgage-backed securities 149 24 125
Commercial mortgage-backed securities 50 50
Collateralised debt obligations 35 35
Risk-free government securities 85 85
Corporate bonds 93 9 84
Total debt securities 412 94 108 210
Hedge fund investments:
Equity long/short 55 55
Global opportunities 35 35
High-yield debt securities 90 90
Total hedge fund investments 180 90 90
Derivatives:
Interest rate contracts 57 57
Foreign exchange contracts 43 43
Credit contracts 38 38
Commodity futures contracts 78 78
Commodity forward contracts 20 20
Total derivatives 236 78 120 38
Investment properties:
CommercialAsia 31 31
CommercialEurope 27 27
Total investment properties 58 58
Total recurring fair value measurements 1,424 577 341 506
Non-recurring fair value measurements
Assets held for sale
(c)
26 26 (15)
Total non-recurring fair value measurements 26 26 (15)
(CU in millions)
Fair value measurements at the end of the
reporting period using
Description
(a)
On the basis of its analysis of the nature, characteristics and risks of the securities, the entity has determined that presenting them by
industry is appropriate.
(b)
On the basis of its analysis of the nature, characteristics and risks of the investments, the entity has determined that presenting them
as a single class is appropriate.
(c)
In accordance with IFRS 5, assets held for sale with a carrying amount of CU35 million were written down to their fair value of CU26
million, less costs to sell of CU6 million (or CU20 million), resulting in a loss of CU15 million, which was included in profit or loss for the
period.
(Note: A similar table would be presented for liabilities unless another format is deemed more appropriate by the entity.)


Illustrative Example 15 - Fair values at the end of the
reporting period and level of the fair value hierarchy
for non-recurring fair value measurements
IFRS Foundation
More information about Level 3
Quantitative disclosure of unobservable
inputs and assumptions used
Reconciliation of opening to closing balances
Description of valuation process in place

73
IFRS Foundation
More information about Level 3 continued
Sensitivity analysis:
narrative discussion about sensitivity to changes
in unobservable inputs, including inter-
relationships between inputs that magnify or
mitigate the effect on the measurement
quantitative sensitivity analysis for financial
instruments
More detail in determining classes

74
IFRS Foundation
More information about Level 3 continued
75
Illustrative Example 17 Quantitative information
about significant unobservable inputs used





Quantitative information about fair value measurements using significant unobservable inputs (Level 3)
(CU in millions)
Description
Fair value at
31/12/X9 Valuation technique(s) Unobservable input Range (weighted average)
Other equity securities:
Healthcare industry 53
Discounted cash f low weighted average cost of capital 7% - 16% (12.1%)
long-term revenue growth rate 2% - 5% (4.2%)
long-term pre-tax operating margin 3% - 20% (10.3%)
discount f or lack of marketability
(a)
5% - 20% (17%)
control premium
(a)
10% - 30% (20%)
Market comparable companies
EBITDA multiple
(b)
10 - 13 (11.3)
revenue multiple
(b)
1.5 - 2.0 (1.7)
discount f or lack of marketability
(a)
5% - 20% (17%)
control premium
(a)
10% - 30% (20%)
Energy industry 32
Discounted cash f low weighted average cost of capital 8% - 12% (11.1%)
long-term revenue growth rate 3% - 5.5% (4.2%)
long-term pre-tax operating margin 7.5% - 13% (9.2%)
discount f or lack of marketability
(a)
5% - 20% (10%)
control premium
(a)
10% - 20% (12%)
Market comparable companies
EBITDA multiple
(b)
6.5 - 12 (9.5)
revenue multiple
(b)
1.0 - 3.0 (2.0)
discount f or lack of marketability
(a)
5% - 20% (10%)
control premium
(a)
10% - 20% (12%)
Private equity fund investments 25
Net asset value
(c)
n/a n/a
Debt securities:
Residential mortgage-backed securities 125
Discounted cash f low constant prepayment rate 3.5% - 5.5% (4.5%)
probability of def ault 5% - 50% (10%)
loss severity 40% - 100% (60%)
Commercial mortgage-backed securities 50
Discounted cash f low constant prepayment rate 3% - 5% (4.1%)
probability of def ault 2% - 25% (5%)
loss severity 10% - 50% (20%)
Collateralised debt obligations 35
Consensus pricing of f ered quotes 20 - 45
comparability adjustments (%) -10% - +15% (+5%)
Hedge fund investments:
High-yield debt securities 90
Net asset value
(c)
n/a n/a
Derivatives:
Credit contracts 38
Option model annualised volatility of credit
(d)
10% - 20%
counterparty credit risk
(e)
0.5% - 3.5%
own credit risk
(e)
0.3% - 2.0%
Investment properties:
CommercialAsia 31
Discounted cash f low long-term net operating income margin 18% - 32% (20%)
cap rate 0.08 - 0.12 (0.10)
Market comparable approach price per square metre (USD) $3,000 - $7,000 ($4,500)
CommercialEurope 27
Discounted cash f low long-term net operating income margin 15% - 25% (18%)
cap rate 0.06 - 0.10 (0.80)
Market comparable approach price per square metre (EUR) 4,000 - 12,000 (8,500)
(a) Represents amounts used when the entity has determined that market participants would take into account these premiums and discounts when pricing the investments.
(b) Represents amounts used when the entity has determined that market participants would use such multiples when pricing the investments.
(c) The entity has determined that the reported net asset value represents f air value at the end of the reporting period.
(d) Represents the range of the volatility curves used in the valuation analysis that the entity has determined market participants would use when pricing the contracts.
(e) Represents the range of the credit def ault swap spread curves used in the valuation analysis that the entity has determined market participants would use when pricing the contracts.
(Note: A similar table would be presented for liabilities unless another format is deemed more appropriate by the entity.)


IFRS Foundation
More information about Level 3 continued
An entity might disclose the following:
(a) For the group within the entity that decides the entitys valuation policies and
procedures:
its description;
to whom that group reports; and
the internal reporting procedures in place (eg whether and, if so, how pricing,
risk management or audit committees discuss and assess the fair value
measurements);
(b) the frequency and methods for calibration, back testing and other testing
procedures of pricing models;
(c) the process for analysing changes in fair value measurements from period to
period;
(d) how the entity determined that third-party information, such as broker quotes or
pricing services, used in the fair value measurement was developed in accordance
with the IFRS; and
(e) the methods used to develop and substantiate the unobservable inputs used in
a fair value measurement.


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Illustrative Example 18 Valuation processes:
IFRS Foundation
More information about Level 3 continued
77
Illustrative Example 19 Narrative discussion about
sensitivity to changes in unobservable inputs:
The significant unobservable inputs used in the fair value
measurement of the entitys residential mortgage-backed
securities are prepayment rates, probability of default and
loss severity in the event of default. Significant increases
(decreases) in any of those inputs in isolation would result
in a significantly lower (higher) fair value measurement.
Generally, a change in the assumption used for the
probability of default is accompanied by a directionally
similar change in the assumption used for the loss
severity and a directionally opposite change in the
assumption used for prepayment rates.

IFRS Foundation
Part V: Effective date and
transition
IFRS Foundation
Effective date and transition
Effective 1 January 2013
Earlier application permitted
Prospective application, no comparatives

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IFRS Foundation