ACCA - IFRS 13 - Aug23 - For Participants

Malaysia’s Journey to IFRSs convergence
21 August 2023
© 2023 Deloitte PLT 1
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Malaysia’s journey to convergence with IFRSs
1 J A NUARY 2 0 1 2
J UNE 2 0 11
IFRSs Convergence
MASB ED – IFRS-
compliant FRS
Implementation
A UGUS T 2 0 08 A UGUS T 2 0 10 support
• Convergence with IFRSs in 2012 Deferment of IC Int. 15
• FRS 139 effective 2010 • FAQs on
Convergence
M A Y 2 0 06 with IFRSs
Deferment of FRS 139 • FAQs on
Implementation
of MFRSs
• MASB Monthly
Teleconference
F EB RUARY 2 0 06 on MFRS
2 tier framework:
• Entities other than Private Entities – FRS
• Private entities - PERS
O C TOBER 2 0 05
New FRSs for 2006
IFRS 13 Fair Value Measurements
21 August 2023
Learning objectives
Fair value measurement
01 Understand the underlying principles of IFRS 13
02 Understand the different valuation techniques and its inputs in accordance with IFRS 13
03 Understand specific application issues of IFRS 13
04 Understand the disclosure requirements of IFRS 13

Contents
Introduction
Definition of fair value
Overview of the IFRS 13 fair value measurement framework
Valuation techniques and inputs in accordance with IFRS 13
Initial recognition
Specific applications
Disclosure requirements
Resources
Introduction

Objective of IFRS 13
IFRS 13 sets out a framework for measuring fair value in a single IFRS, and answers the 3 following questions:
#2
#3
#1 How should an entity
What should be
What is meant by “fair measure fair value for
disclosed about fair value
value”? financial reporting
measurements?
purpose?

Scope of IFRS 13
Scope of
IFRS 13 is broad
Applies when another IFRS requires or permits

fair value measurements or disclosures
Applies to both initial and subsequent measurement as to how to determine

fair value
IFRS 13 does not address which types of assets, liabilities and items
classified as an entity’s own shareholders’ equity should be measured at fair
value

Scope of IFRS 13
IFRS 3 Business
combinations
IFRS 9 Financial IAS 16 Property, plant

Instruments and equipment*
IAS 40 Investment IAS 38 Intangible

Scope of IFRS 13
property# assets*
IAS 36 Impairment of
IAS 41 Agriculture
assets
IFRS 5 Non-current
assets held for sale
and discontinued
operations
* Assets measured at revalued model

# Investment property measured at fair value model

Scope exemptions
2 categories of scope exemptions
• Share-based payment transactions within the scope of IFRS 2 Share-based Payments

Category 1: • Leasing transactions accounted for in accordance with IFRS 16 Leases
Exempt from IFRS 13
measurement and • Measurements that have similarities to fair value but are not fair value (e.g., net realisable value in IAS
disclosure 2 Inventories or value in use in IAS 36 Impairment of Assets)
requirements
• Plan assets measured at fair value in accordance with IAS 19 Employee Benefits
Category 2: • Retirement benefit plan investments measured at fair value in accordance with IAS 26 Accounting and
Exempt only from IFRS Reporting by Retirement Benefit Plans
13 disclosure
requirements • Assets for which the recoverable amount is fair value less costs of disposal in accordance with IAS 36
Impairment of Assets

Quiz
Which of the following item(s) does the fair value measurement and disclosure requirements of IFRS 13 NOT apply to?
i. Inventories
ii. Investment property (fair value option)
iii. Share-based payment transactions
iv. Leases
A i and iii only
B ii only
C i, iii and iv only
D all of the above

Quiz
Is IFRS 13 relevant in determining the recoverable amount of an asset (or a cash generating unit) in accordance with IAS 36 Impairment
of Assets?
A Yes
B No
C It depends

Overview of the IFRS 13 fair value measurement
framework

Definition of fair value
Between
Fair value is In an orderly At measurement
market
an Exit Price transaction date
participants
Asset The price that would be received to sell the asset
The price that would be paid to transfer the liability:

• Based on how much the reporting entity has to pay to a market participant
Liability
such that the market participant is willing to take over the liability
• NOT based on how much the reporting entity has to pay to settle a liability

The fair value measurement framework
Identify the unit of account
Financial assets and Liabilities and equity

Non-financial assets
financial liabilities instruments
Identify principal (or most advantageous) market
Identify market participants and the assumptions

participants make in determining fair value
Select appropriate valuation technique(s)
Determine hierarchy classification and prepare disclosures

Unit of account
Unit of account
Determined in accordance with the IFRS that requires or permits

the fair value measurement, except as provided in IFRS 13
Stand-alone asset Group of assets or Group of assets

or liability liabilities and liabilities

Illustrative example 1
Background
Entity A owns 16% equity interest in Entity B (160 million shares). Assume that Entity B is a listed company in Vietnam and its shares are
actively traded.
Entity A accounts for the 16% equity interest in Entity B as an investment measured at fair value through other comprehensive income
(FVTOCI) in accordance with IFRS 9.
How should Entity A determine the fair value of the 16% equity interest in Entity B?

Suggested solution
Applicable IFRS IFRS 9
Individual shares
Unit of account (as traded in an active market)
Fair Market price at Quantity

value measurement date* (i.e. 160 million shares)
* No adjustments for premiums or discounts based on the size of the holding

Background
• Entity A owns 54% equity interest in Entity B (300 million shares). Entity B is a listed entity in Vietnam and its shares are traded in an
active market.
• Entity B is a subsidiary of Entity A.
• Entity A prepares separate financial statements in accordance with IAS 27 Separate Financial Statements.
• Entity A chooses to account for the interest in Entity B in accordance with IFRS 9.
• Entity A accounts for the interest in Entity B as an investment measured at FVTOCI in accordance with IFRS 9.
How should Entity A determine the fair value of the interest in Entity B? Should Entity A take into account the control premium in
determining the fair value of the interest in Entity B?

Suggested solution
Applicable IFRS IFRS 9
Unit of account Individual shares / Investment as a whole#

(Note 1) (as traded in an active market)
Fair Market price at Quantity

value measurement date* (i.e. 160 million shares)
Note 1:
Two acceptable approaches for unit of account as a matter of accounting policy choice, which is to be applied consistently
* No adjustments for premiums or discounts based on the size of the holding, on the basis that the unit of account is individual shares
# Valuation will be adjusted to reflect control premium that would arise when the investment is sold as a whole




Identifying the market
A fair value measurement assumes Principal market

that the transaction to sell the asset (the market with the greatest
or transfer the liability takes place volume or level activity for the asset
in… or liability)
In the absence of
principal market
Most advantageous market

(the market that maximises the amount that would be received to sell the asset or minimises the
amount that would be paid to transfer the liability, after taking into account transaction costs
and transport costs)

Identifying the market
Step 2
Step 1 Among the markets identified
Identify markets to which the under Step 1, determine the
reporting entity has access principal (or most
advantageous) market
Example:
Step 1 Step 2
Entity A is engaged in the trading of

Entity A determines that Market B is the
goods and has access to Markets B, C, D,
principal (or most advantageous) market
E and F




Market participants
Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following
characteristics:
• Independent of each other, i.e not related parties as defined in IAS 24 Related Party Disclosures
Market
• Knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all
participants
available information
• Able to enter into a transaction for the asset or liability
• Willing to enter into a transaction for the asset or liability, i.e motivated but not forced
How to
The principal (or most Market participants with whom
distinguish The asset or
advantageous) market the entity would enter into a
market liability
for the asset or liability transaction in that market
participants?

Pricing: Characteristics of the asset or liability
Market participants
Assume that they act in their best economic interest
Pricing assumptions
• Orderly transaction
• Under current market conditions at
measurement date Fair value of asset
or
liability
Characteristics of asset
or liability
• Condition or location
• Restriction on sale or use

Transaction costs and transport costs
Transaction cost
Transport cost
Fair value is an Do not adjust.
Adjust if location is a
Exit Price Account in accordance with
characteristic of the asset
applicable IFRSs
E.g. Commission fees

E.g. Cost to ship goods payable to real estate agents
from one location to when an entity sells its
another property
Both transport costs and transaction costs would be taken into account in
identifying the most advantageous market.

Illustrative example
• Entity A acquired an investment property • The market value of the investment

for a transaction price of CU100 million. property remains unchanged at CU100
• Entity A paid commission fees to real million.
estate agent of about CU5 million.
• Entity A recorded the investment • Assume that if Entity A sold the property
property on initial recognition at CU105 on 31 Dec 20X1, it has to incur
million in accordance with IAS 40.20 commission fees of CU3 million.
(Investment Property).
1 Dec 20X1 31 Dec 20X1
Entity A measures its investment property using the fair value model in accordance with IAS 40
Investment Property.
At what amount should Entity A record the investment property as at 31 December 20X1?

Suggested solution
At reporting date – CU100 million
Initial recognition – CU105 million • Transaction cost to be incurred should

not be adjusted as per IFRS 13:25
Made up of:
Transaction price – CU100 million • Difference of CU5 million (CU105
Transaction cost – CU5 million million – CU100 million) should be
recognised as fair value adjustment in
profit/loss
1 Dec 20X1 31 Dec 20X1

Quiz
• Entity A has agricultural produce as defined under IAS 41, which is required to be measured at fair value at the point of harvest.
• The agricultural produce is located in location A.
• It was determined that Entity A’s principal market is location B.
• Pricing quote at location B is CU100 per unit of agricultural produce.
• It would cost Entity A transportation costs of CU5 to ship each unit of agricultural produce from location A to location B.
What is the fair value of each unit of agricultural produce at its current location i.e. location A?
A CU95
B CU100
C CU105

Valuation techniques and inputs in accordance
with IFRS 13




Valuation techniques
• No rules as to which valuation technique(s) must be used
• Select the most appropriate technique in the circumstances, for
which sufficient data is available
• Apply consistently
• Change in technique = change in accounting estimate
INPUTS
• Maximise use of relevant observable inputs
• Minimise use of unobservable inputs
• Select inputs that are consistent with characteristics of asset or liability (from market
participant perspective)
• Consider:
− Location and condition
− Restrictions on sale or use

Widely used valuation techniques
Market approach Cost approach Income approach
Prices and other relevant

information generated Current Convert the future
by market transactions replacement amounts into a single
involving identical or cost current amount
comparable items

Market approach
• Expresses the value of a business or other asset in terms of its ratio to a financial, operating
or physical metric Market
Market multiple
• A range of multiples may be derived, with aapproach
different multiple for each comparable asset or
liability
The selection of the appropriate multiple within the range requires the exercise of
judgement.
Matrix pricing 8% 10% 12%

Matrix pricing 2 year Bond C
(CU120)
• A mathematical technique used principally to value 6 year Bond A (?)
some types of financial instruments, such as debt
Example 10 year Bond B
securities
(CU80)
• Rely on the securities’ relationship to other
Value of unquoted Bond A may be estimated using matrix pricing in a
benchmark quoted securities
matrix as shown above and from using mathematical formula to derive the
Yield-To-Maturiy to estimate the bond price.

Cost approach
Market • What it would cost a to acquire or construct aMarket

substitute asset of comparable utility, adjusted for
participant buyer obsolescence approach
• Would not pay more for an asset than the amount for which it could replace
• Physical deterioration
• Functional (technological) obsolescence Market
Obsolescence
• Economic (external) obsolescence approach
Depreciated replacement cost (DRC) method
• Considers how much it would cost to reproduce an asset of equivalent

Example utility taking into account physical, functional and economic obsolescence
• Estimates the replacement cost of the required capacity rather than the
actual asset
• DRC is sometimes used to measure the fair value of plant and equipment
Cost approach is based on service capacity, it is not relevant for measuring the
fair value of financial assets.
Income approach
• Discount rate adjustment technique

Present value • Market present value)
Expected cash flow (expected
technique technique approach
• Black-Scholes-Merton formula or a binomial

Option pricing model
Market
• Incorporate present value techniques
model approach
• Reflect both the time value and the intrinsic
value of an option
• Used to measure the fair value of some

Multi-period
intangible assets Market
excess earnings
approach
method

Income approach
Present value technique
Present value techniques General principles [IFRS 13:B14]:

• Cash flows and discount rates should reflect assumptions that market
participants would use when pricing the asset or liability
• Cash flows and discount rates should take into account only the factors
attributable to the concerned asset or liability
• To avoid double-counting or omitting the effects of risk factors
Convert the future amounts into a single
• Assumptions about cash flows and discount rates should be internally
current amount using a discount rate
[IFRS 13:B13] consistent
• Discount rates should be consistent with the underlying economic factors of
the currency in which the cash flows are denominated
For example, if contractual cash flows of a loan are used, the discount rate should
reflect the uncertainty in expectations about future defaults.
However, if expected cash flows are used instead, a discount rate that is consistent
with the risk already being reflected in the expected cash flows should be used.

Income approach
Present value techniques A PV technique captures the following elements [IFRS 13:B13]:
• An estimate of future cash flows for the asset or liability being measured
• Expectations about possible variations in the amount and timing of the cash
flows representing the uncertainty inherent in the cash flows
• The time value of money (i.e., a risk-free interest rate)
• The price for bearing the uncertainty inherent in the cash flows (i.e., a risk
Convert the future amounts into a single premium)
current amount using a discount rate • Other factors that market participants would take into account in the
[IFRS 13:B13] circumstances
• For a liability, the non-performance risk relating to that liability, including the
entity’s own credit risk

Income approach
[IFRS 13:B16] A fair value measurement should include a risk premium reflecting the amount
Risk and uncertainty that market participants would demand as compensation for the uncertainty inherent in the
cash flows.
PV techniques are made under conditions of

[IFRS 13:B17] Present value techniques differ in how they adjust for risk and the type of cash
uncertainty because the cash flows used are
flows they use. For example, the discount rate adjustment technique uses a risk-adjusted
estimates rather than known amounts. In many
discount rate and contractual, promised or most likely cash flows.
cases, both the amount and timing of the cash flows
are uncertain. Even contractually fixed amounts,
such as the payments on a loan, are uncertain if
there is risk of default.
[IFRS 13:B15] Expected present value techniques incorporate the
effects of risk and uncertainty using one of two methods.
Risk premium - Compensation sought by risk-averse

market participants for bearing the uncertainty
inherent in the cash flows of an asset or a liability.
Also referred to as a ‘risk adjustment’. Method 2 - Expected cash flows that are
Method 1 - Risk-adjusted expected cash
not risk-adjusted and a risk-adjusted
Expected cash flow - The probability-weighted flows and a risk-free discount rate
discount rate
average (i.e., mean of the distribution) of possible
future cash flows.
[IFRS 13.App A]

Income approach
Illustrative of a simplified DCF model (present value technique)

Inputs to valuation techniques
The assumptions that market participants would use when pricing the asset or liability, including assumptions about:
Inputs
• Risk inherent in a particular valuation technique used to measure fair value (such as a pricing model); and
• Risk inherent in the inputs to the valuation technique
Observable inputs Unobservable inputs
• Exchange market
• Dealers market
• Inputs derived by entity
• Brokered market
• Principal-principal market

Quiz
• Entity A has a 10% equity interest in Entity B.

• Entity B’s shares are not traded in an active market.
• However, Entity B is considered comparable to a number of companies whose shares are traded in an active market.
Which valuation technique is not relevant in estimating the fair value of the equity interest in Entity B?
A Market approach
B Cost approach
C Income approach




Fair value hierarchy
Level 1
The fair value hierarchy is applicable to both financial and
non-financial items that are within the scope of IFRS 13
The fair value hierarchy gives the highest priority to quoted

prices in active markets for identical assets and liabilities
and the lowest priority to unobservable inputs
Level 2
The fair value measurement is categorised in its entirety

based on the lowest level of significant input
Level 3 Fair value hierarchy depends on the inputs,

not valuation techniques

• Quoted prices in active market for identical assets or liabilities.

• Active Market: A market in which transactions for the asset or liability take place with sufficient
Level 1 frequency and volume to provide pricing information on an ongoing basis.
• Observable inputs other than quoted prices in Level 1, either directly or indirectly.
• If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for
substantially the full term of the asset or liability.
• Level 2 inputs include the following:
− Quoted prices for similar assets or liabilities in active markets.
− Inputs other than quoted prices that are observable for the asset or liability (e.g., observable
interest rates and yield curves).
Level 2
• The fair value measurement objective remains the same–exit price.

• Entities should try to select the most reliable among unobservable inputs.
• The Level 3 measurement inputs should include risk inherent in the particular valuation technique
and the risk inherent in the inputs to the valuation technique.
• Examples of Level 3 inputs:
Level 3 − Labour quotes for a particular job in determining the fair value of a decommissioning liability
in a business combination.
− Profit/cash flow forecast used in determining the fair value of a cash-generating unit (e.g.,
cash flows or profit or loss forecast).

Decision tree: Fair value hierarchy
Any quoted price for an Any observable

identical asset or liability (Level NO inputs other than NO
1 inputs )? Level 1 inputs?
YES YES Use of unobservable

inputs that are significant
to the measurement in its
entirety =
Level 3 measurement
Use of observable inputs that

Use the Level 1 input =
are significant to the
Level 1 measurement (must be
measurement in its entirety =
unadjusted)
Level 2 measurement

Quiz
Entity A owns an investment property that is accounted for using the fair value model in accordance with IAS 40 Investment Property.
According to the valuation report, the fair value of the investment property is determined based on the fair values of comparable
properties in the similar location, and no significant adjustments are required to be made to the average transaction price.
How should Entity A categorise the fair value measurement
(i.e., Level 1, 2 or 3)?
A Level 1
B Level 2
C Level 3

Initial measurement

Fair value vs Transaction price
Fair value Transaction price
Price that would be received to sell the Price paid to acquire the asset or received
asset or paid to transfer the liability to assume the liability
EXIT PRICE ENTRY PRICE
Is transaction price always equal to fair value?

If not, how should a ‘Day 1 gain/loss’ be accounted for?

Generally, the transaction price will equal the fair value

(e.g., on the transaction date, the transaction to buy an asset takes place in the market in which the asset would
be sold)
IFRS 13 requires us to take into account factors that are specific to the transaction and to the asset or liability.
Transaction price might not equal fair value if...
Unit of account
Transaction is between represented by the
Transaction takes place The market in which the
related parties (i.e., transaction price differs
under duress or the transaction takes place
transactions may from the unit of account
seller is forced to accept is different from the
include capital for the asset or liability
the price in the principal (or most
contribution/ measured at fair value
transaction advantageous) market
distribution element) (e.g., a business
combination situation)
How to account for the “Day 1 gain or loss”?
Entities should account for the difference between the

transaction price and the day 1 fair value as a gain or loss in
profit or loss unless the applicable IFRSs specify otherwise

Specific application

Highest and best use
A fair value measurement of a non-financial asset should take into account a market participant’s
ability to generate economic benefits by using the asset in its highest and best use OR by selling it to
another market participant that would use the asset in its highest and best use.
The use by market participants that would maximise the value of the asset or the group of assets
and liabilities within which the asset would be used
Physically possible?
(location or size of the asset)
Legally permissible?
(legal restrictions on the use of the asset)
Financially feasible?
(ability to generate adequate income or cash flows to produce an investment return that
market participants expect)
Applies only to non-financial assets
Entity’s current use presumed to be

Determined from market participant’s
highest and best use
perspective
(unless market or other factors
(even if reporting entity intends a
suggest a different use by market
different use)
participants would maximise the value)
Highest and best use must be supportable

• Entity A acquired a 100% equity interest in Entity B (the acquiree).
• Entity B has undertaken a research and development project to develop a medicine (currently a cure has not yet been discovered) –
i.e., in process of research & development (R&D).
• Entity A is also engaged in pharmaceutical industry. Entity A and Entity B are competitors – Entity A is also in the process of
developing a medicine for the same type of sickness. Whoever is able to develop and market the medicine first will become the
market leader on that area.
• Entity A does not intend to use the R&D acquired as it has already had the knowledge. The acquisition of Entity B is for defensive
purposes.
• Entity A has to develop the fair value of the R&D at the date of acquisition.
How should Entity A determine the fair value of the in-process R&D at the date of business combination?

Suggested solution
Step 1 – Determine the highest and best use of the R&D
(Maximum value to market participants)
Option 1: Option 2: Option 3:

Continue development if Cease development if, for Cease development if
market participants would competitive reasons, market participants would
continue to do so market participants would discontinue its
lock up the project development
Step 2 – Determine the fair value of the R&D
Determined on the Determined on the

premise of how much a premise of how much a Determined on the basis
market participant would market participant would of the price that would be
pay the reporting entity pay the reporting entity received in a current
for the R&D and that the for the R&D and that the transaction to sell the
market participant would market participant would project on its own (which
continue development of lock up the development might be zero).
the R&D. of the R&D.
Quiz
Is an entity’s own facts and circumstances (e.g., the entity’s intention to use the property as it is) a valid input in determining the fair
value of the property in accordance with IFRS 13?
A Yes
B No
C It depends

Liabilities
Between
market
participants
Liability
Price that would be paid to transfer the liability to a market participant at the measurement date
Assumes:
• Liability is transferred to a market participant, not settled, at the measurement date
• The liability remains outstanding and the market participant transferee would be required to fulfil
the obligation
• Regardless of whether the reporting entity has the ability to transfer its liability to someone else

Liabilities
Between
market
participants
Non-performance risk
• Should reflect non-performance risk

• Regardless of whether the liability is a financial liability or a non-financial liability
• Non-performance risk includes, but not limited to, an entity’s own credit risk
• Non-performance risk is assumed to be the same before and after the transfer

Equity instruments
Between
market
participants
Own equity instruments

Price that would be paid to transfer the equity instruments to a market participant at the
measurement date
Assumes:
• The entity’s own equity instruments would remain outstanding at the measurement date and the
market participant transferee would take on the rights and responsibilities associated with the
instrument

Valuation: Liabilities and equity instruments
Is there a quoted price for the

transfer of an identical or a Use the
similar liability or entity’s own YES quoted price
equity instrument?
NO
Measure the fair value of the liability or equity

Is there an identical item that
instrument using a valuation technique from the
is held by another party as an NO
perspective of a market participant that owes the liability
asset?
or has issued the claim on equity
YES
Measure the fair value of the liability or equity instrument from the perspective of a market
participant that holds the identical item as an asset at the measurement date

Quiz
In accordance with IFRS 13, does an entity need to take into account its own credit risk (i.e., the risk that the entity will not fulfil its obligation) when
determining the fair value of its liabilities?
A Yes
B No
C It depends

Measurement of equity instruments
How to determine fair value?

Measurement of equity instruments
How to determine fair value?
• Relevant guidance from IFRS 13

• IASB Educational material:
https://www.ifrs.org/content/dam/ifrs/supporting
-implementation/ifrs-13/education-ifrs-13-eng.pdf

Measuring unquoted equity instruments at fair value
A range of valuation techniques can be used when measuring the fair value of
unquoted equity instruments. Judgement is involved!
Valuation approaches:
1 Market approach
2 Income approach
3 Combination of approaches

Valuation approaches - Market approach
Uses prices and other relevant information that have been generated by market transactions
Market
Market approach that involve identical or comparable assets.
approach
Most commonly used for valuing unquoted equity instruments that are related to the data
sources that they use
Transaction price paid for identical instruments
• Transaction price may be a reasonable starting point.

• Look out for indicators that suggest transaction price
Market may not be representative of fair value (see slide 52).
approach
techniques Comparable company valuation multiple derived from
quoted prices
• Consider comparable company peers for which market

price is available.

Valuation approaches - Income approach
Converts future amounts to single current amount.

Market
Income approach
approach
• Estimate the future expected cash flows of an

investee
Discounted • Discount the expected cash flow amounts to a

cash flow present value (present value technique)
(DCF)
method • Equity instruments can be valued directly (equity
valuation), using free cash flow to equity (FCFE), or
indirectly, by obtaining the enterprise value using
free cash flow to firm (FCFF) and then subtracting
the fair value of the investee’s debt net of cash

Valuation approaches - Adjusted net asset method
Adjusted net Deriving the fair value of an investee’s equity instruments by reference to the fair value of its
Market
asset method assets and liabilities (recognised
approach and unrecognised).
Most commonly used to value investee whose value is mainly derived from the holding of
assets rather than from deploying those assets as part of a broader business
• Measure the fair value of the individual assets and

liabilities recognised
• Measure the fair value of any unrecognised assets
and liabilities at the measurement date
Adjusted • Consider the need for applying a non-controlling
net asset interest discount when measuring the fair value of
method a non-controlling equity Interest
• Consider the existence of other factors that might
result in the need for an adjustment (e.g. similar
but not identical or different level of unit of
account)

Valuation of investment properties
• Involves complex methodologies (market comparable, income approach,

Complex replacement costs)
•
Manage- May involve management’s expert provide information (valuation report) to be used
ment as audit evidence
expert
•
Auditor’s May involve auditor’s specialist to evaluate the valuation
expert

Valuation approaches
• Utilises prices and other information generated by market transactions of similar assets (e.g. location, type/zoning, tenure,
age/condition)
Market approach
• Generally, 3 to 5 comparables are used
• Appropriate adjustments are made to the unit of comparison/subject property
• Used when income is not expected to vary significantly

• Methods:
1. Income/Investment capitalisation method
o Used when income is not expected to vary significantly
o Involves the analysis of a single years net income (or average of several years net income). The resulting
Income approach “Net Operating Income” is capitalised by an overall capitalisation rate to derive the value
2. Discounted Cash Flow (or yield capitalisation method)
o Involves the conversion of future values into present value by applying an appropriate discount rate to the
various cash flows. These future benefits include any series of periodic incomes with or without reversion
of the property.
o In determining market value, typical investor’s yields are applied.
• Generally, used to value properties which seldom change hand and for which there are few comparable sales
Cost approach • Appropriate for valuing specialised properties (e.g. schools, hospitals, libraries and other buildings)
• The depreciated replacement cost method is applied

Fair value hierarchy and valuation inputs
Valuation is often unique due to the nature of the properties and availability of comparable market prices for identical assets.
Generally, fair value measurements will be categorised as either Level 2 or 3, depending on the significance of unobservable
inputs used in the valuation
Level 2 Level 3
Sales price per square metre (psm) for similar properties Yields based on management estimation
in similar locations (e.g. Yields Fair value)
(e.g. Sales price psm Fair value)
Observable market rent per square metre for similar Significant yield adjustments based on management’s
properties assumptions about uncertainty/risk
(e.g. Market rent psm Fair value) (e.g. Risk adjustment Fair value)
Property yields derived from latest transactions Assumptions about future developments or parameters
(e.g. Property yields Fair value) (e.g. vacancy, rent) that are not derived from the market
(e.g. Vacancy/ rent Fair value)
Cash flow forecast using entity’s own data
(e.g. Cash flow forecast Fair value)

Disclosure requirements

Disclosures: Key Principles
Disclose information that helps users assess assets and

liabilities measured at fair value after initial recognition
Recurring basis Non-recurring basis
Recurring fair value measurements of assets or liabilities are

Non-recurring fair value measurements
those that other IFRSs require or permit in the statement of
of assets or liabilities are those that other
financial position at the end of each reporting period.
IFRSs require or permit in the statement
of financial position in particular
Examples
circumstances.
• Investment properties measured using the fair value model
under IAS 40.
Examples
• Financial assets at fair value through profit or loss under
• Assets classified as held for sale
IFRS 9.
measured at the lower of fair value less
• Property, plant and equipment/intangible assets measured
costs to sell and their carrying amounts
using the revaluation model under IAS 36/ IAS 38.
under IFRS 5.
• Biological assets under IAS 41.

Disclosures: Key requirements (Non-exhaustive)
Both recurring and non-recurring Recurring
• FV measurement at end of reporting period • Transfers between levels 1 & 2 and reasons (disclose transfers in & out
General • Level (1, 2,or 3) in FV hierarchy categorised in its entirety separately)
• If highest and best use differs from current use, fact and why *
Level 1 - -
• Valuation techniques and inputs

Level 2 -
• Any change in valuation technique and reason
• Reconciliation from opening to closing balance

• Total gains or losses in period recognised in P&L
• Valuation techniques and inputs • Total gains or losses in period recognised in OCI
• Any change in valuation technique and reason • Purchases, sales, issues and settlements in period
Level 3
• Quantitative information about significant unobservable inputs • Amount and line item of any unrealised gains or losses in P&L
• Description of valuation process
• (Narrative) sensitivity of FV to changes in unobservable inputs
• If reasonably possible change in assumptions would change fair value
significantly, disclose fact and effect of change #
* Applicable to non-financial asset only

# Applicable to financial assets and financial liabilities only
UK Financial Reporting Council Thematic Review on IFRS 13
Source: UK FRC Thematic Review on IFRS 13

UK Financial Reporting Council Thematic Review on IFRS 13 – Observations (1/2)

UK Financial Reporting Council Thematic Review on IFRS 13 – Observations (2/2)

Key takeaways (1/2)
Scope of IFRS 13
• IFRS 13 applies when another IFRS requires or permits fair value measurements or disclosures
• 2 categories of scope exemptions
Definition of fair value and key principles

• Fair value is the exit price in an orderly transaction between market participants at the
measurement date
• Asset – the fair value is the price that would be received to sell the asset
• Liability – the fair value is the price that would be paid to transfer the liability
Measurement
• Fair value measurement of non-financial assets should be based on highest and best use
• Fair value measurement of liabilities and an entity’s own equity instruments are based on the
price that would be paid to transfer the liability/ entity’s own equity instruments to market
participant at measurement date
Key takeaways (2/2)
• Valuation techniques are used to measure fair value, maximising the use of observable inputs
and minimising the use of unobservable input
• Level 1 – unadjusted quoted price in active markets

• Level 2 – other observable inputs not included within Level 1
• Level 3 – unobservable inputs
Disclosures
• Recurring fair value measurements of assets or liabilities are those that other IFRSs require or
permit in the statement of financial position at the end of each reporting period.
Non-recurring fair value measurements of assets or liabilities are those that other IFRSs require
or permit in the statement of financial position in particular circumstances.

Resources

Resources
Deloitte E-Learning on IFRS 13 (https://www.deloitteifrslearning.com/learning/section/2/)

Resources
Summary of IFRS 13 (IAS Plus)

Q&A

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Malaysia’s Journey to IFRSs convergence

© 2023 Deloitte PLT 2

Fair value measurement

01 Understand the underlying principles of IFRS 13

03 Understand specific application issues of IFRS 13

04 Understand the disclosure requirements of IFRS 13

© 2023 Deloitte PLT 5

Definition of fair value

Overview of the IFRS 13 fair value measurement framework

Valuation techniques and inputs in accordance with IFRS 13

© 2023 Deloitte PLT 7

© 2023 Deloitte PLT 8

Applies when another IFRS requires or permits

Applies to both initial and subsequent measurement as to how to determine

© 2023 Deloitte PLT 9

IFRS 9 Financial IAS 16 Property, plant

IAS 40 Investment IAS 38 Intangible

* Assets measured at revalued model

© 2023 Deloitte PLT 10

2 categories of scope exemptions

• Share-based payment transactions within the scope of IFRS 2 Share-based Payments

© 2023 Deloitte PLT 11

A i and iii only

C i, iii and iv only

D all of the above

© 2023 Deloitte PLT 12

© 2023 Deloitte PLT 13

© 2023 Deloitte PLT 14

Asset The price that would be received to sell the asset

The price that would be paid to transfer the liability:

© 2023 Deloitte PLT 15

Identify the unit of account

Financial assets and Liabilities and equity

Identify principal (or most advantageous) market

Identify market participants and the assumptions

Select appropriate valuation technique(s)

Determine hierarchy classification and prepare disclosures

© 2023 Deloitte PLT 16

Determined in accordance with the IFRS that requires or permits

Stand-alone asset Group of assets or Group of assets

© 2023 Deloitte PLT 17

© 2023 Deloitte PLT 18

Applicable IFRS IFRS 9

Fair Market price at Quantity

* No adjustments for premiums or discounts based on the size of the holding

© 2023 Deloitte PLT 19

• Entity B is a subsidiary of Entity A.

© 2023 Deloitte PLT 20

Applicable IFRS IFRS 9

Unit of account Individual shares / Investment as a whole#

Fair Market price at Quantity

© 2023 Deloitte PLT 21

Identify the unit of account

Financial assets and Liabilities and equity

Identify principal (or most advantageous) market

Identify market participants and the assumptions

Select appropriate valuation technique(s)

Determine hierarchy classification and prepare disclosures