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Accounting, Accounting Updates

Getting to Know PFRS 13, Fair Value Measurements

In accounting context, fair value is not an out-of-this-world term.  In fact, we see only few financial statements that do not use fair value in recognition and measurement of their financial statement items and most of them are SMEs.   Philippine Financial Reporting Standards (PFRS) 13, Fair Value Measurements, explains how to measure fair value for financial reporting.  It does not require fair value measurements in addition to those already required or permitted by other PFRSs and is not intended to establish valuation standards or affect valuation practices outside financial reporting.

And oh, before we forget, PFRS 13 was adopted from the International Accounting Standards Board’s IFRS 13.  Thus, no matter what copy of standard you have, Just change the “I” from the term “IFRS” and it will become “PFRS”. :)

Download a copy of PFRS 13, Fair Value Measurements.

Philippine Financial Reporting Standard 13, Fair Value Measurement (IFRS 13):

  • defines fair value
  • sets out in a single IFRS a framework for measuring fair value
  • requires disclosures about fair value measurements
  • effective January 1, 2013

Main features

IFRS 13 defines fair value as 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 (ie an exit price).

That definition of fair value emphasises that fair value is a market-based measurement, not an entity-specific measurement. When measuring fair value, an entity 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, an entity’s intention to hold an asset or to settle or otherwise fulfil a liability is not relevant when measuring fair value.

The IFRS explains that a fair value measurement requires an entity to determine the following:

  1. the particular asset or liability being measured;
  2. for a non-financial asset, the highest and best use of the asset and whether the asset is used in combination with other assets or on a stand-alone basis;
  3. the market in which an orderly transaction would take place for the asset or liability; and
  4. the appropriate valuation technique(s) to use when measuring fair value. The valuation technique(s) used should maximise the use of relevant observable inputs and minimise unobservable inputs. Those inputs should be consistent with the inputs a market participant would use when pricing the asset or liability.

We’ll include in this post example of how fair value is determined using the guidance of this standard soon.  For the meantime, take time to read the standard yourself to be familiar with it.  You can download it using the link below. :)

Download a copy of PFRS 13, Fair Value Measurements.


About leecpa

Orlando Calundan is a Certified Public Accountant. He has exposures in audit of financial statements of entities in various industries such as real estate, food (quick service restaurants), manufacturing, service organizations and BPOs, automotive, holding/investment companies and more. He also has exposure on internal audit engagements.


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