What Is Fair Value?
Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Here's what IFRS 13 means by it.
Fair value, as defined by IFRS 13, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In plain terms, it's an exit price — what you'd get in a normal, arm's-length sale, not a forced or distressed one.
Key features of the definition
- It's a market-based measurement, not an entity-specific one — it reflects what market participants would do.
- It's an exit price (to sell or transfer), not an entry price (to buy).
- It assumes an orderly transaction, not a forced sale or liquidation.
The fair value hierarchy
IFRS 13 ranks the inputs used to measure fair value into three levels, prioritising observable market data:
- Level 1 — quoted prices in active markets for identical assets or liabilities.
- Level 2 — other observable inputs, such as quoted prices for similar items.
- Level 3 — unobservable inputs, using the entity's own assumptions and models.
Why fair value matters
Fair value is used across many standards — financial instruments, business combinations, investment property, share-based payments — so understanding the definition and hierarchy is foundational for ACCA SBR and FR.
Fair value questions reward applying the definition and hierarchy to the scenario. Practising these and marking them against the official ACCA scheme with The 50% Club shows you exactly where your application loses marks — the fastest way to make fair value a strength.