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Fair Value Measurement

According to NFRS 13, fair value measurements are categorized into three levels based on input priority: 1) Level 1 uses quoted prices from active markets without adjustments. 2) Level 2 uses quoted prices for similar assets/liabilities in active markets or observable inputs. 3) Level 3 uses unobservable inputs only when relevant observable inputs are unavailable. The COVID-19 pandemic has made fair value determination more challenging due to economic uncertainty and suspended share market trading. If suspension persists, level 3 inputs with the entity's own data should be used for valuation. If trading resumes, level 1 and 2 must be applied based on how the market reacts.

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64 views

Fair Value Measurement

According to NFRS 13, fair value measurements are categorized into three levels based on input priority: 1) Level 1 uses quoted prices from active markets without adjustments. 2) Level 2 uses quoted prices for similar assets/liabilities in active markets or observable inputs. 3) Level 3 uses unobservable inputs only when relevant observable inputs are unavailable. The COVID-19 pandemic has made fair value determination more challenging due to economic uncertainty and suspended share market trading. If suspension persists, level 3 inputs with the entity's own data should be used for valuation. If trading resumes, level 1 and 2 must be applied based on how the market reacts.

Uploaded by

bkoi builders
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1.

Fair Value Measurements

Requirement

According to NFRS 13 Fair Value Measurements, the fair value of an asset (or liability) should
reflect market conditions at the measurement date. So the asset/liability should be valued in the
order of priority of these three level inputs.
1. Level -1 Input:
Quoted prices in active markets for identical assets or liabilities that the entity can access
at the measurement date. A quoted market price in an active market provides the most
reliable evidence of fair value and is used without adjustment to measure fair value
whenever available, with limited exceptions.

2. Level-2 Input:
 Quoted prices for similar assets or liabilities in active markets
 Quoted prices for identical or similar assets or liabilities in markets that are not
active  

 Inputs other than quoted prices that are observable for the asset or liability
 Inputs that are derived principally from or corroborated by observable market
data by correlation or other means

3. Level-3 Input:

Unobservable inputs are used to measure fair value to the extent that relevant observable
inputs are not available, thereby allowing for situations in which there is little, if any,
market activity for the asset or liability at the measurement date.

An entity develops unobservable inputs using the best information available in the
circumstances, which might include the entity's own data, taking into account all
information about market participant assumptions that is reasonably available.

Analysis of the Situation

Determination of fair value has become more challenging due to the uncertainty of the economic
impact of COVID-19 Pandemic. Share market trading is suspended since the inception of
Lockdown, and currently it is uncertain when the trading is going to be resumed? And even if the
trading is resumed it’s quite possible that the trading volume may not represent the orderly
normal volume of the transaction due to the uncertainties caused by the pandemic. That might
significantly affect the value of asset or liability held by entity. So, the need to apply NFRS 13
with even more attention emerges.

Recommendations

As we are almost 2 months away from the end of current financial year, it is yet to be observed
that how the situation changes in coming days. If the current situation of suspension persists, it is
advised to use level-3 input for valuation and if the situation improves and trading starts, level -1
and level -2 has to be applied considering how the market reacts.

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