Fair-value-measurement课件

Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Chapter 5,Fair value measurement,Prepared by,Emma Holmes,In September 2011 AASB 13,Fair Value Measurement,was issued,AASB 13 is a new standard which provides a consistent definition of fair value to be applied across all other accounting standards.,Prior to the introduction of AASB 13 different standards had their own definition of fair value.,The main objectives of AASB 13 are:,To define fair value,To establish a framework for measuring fair value,To require disclosures about fair value measurement,A standard on fair value measurement,Prior to the release of AASB 13 the OLD definition of fair value was:,“.,The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction.”,The NEW definition of fair value in AASB 13 is as follows:,“.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.”,Definition of fair value,Exit price,The exit price is defined as:,“.The price that would be received to sell an asset or paid to transfer a liability”,The exit price is based on,the perspective of the holder,The exit price is based on expectations about future cash flows that will be generated,by the asset/liability subsequent to the sale/transfer,This is the case even where the holder intends on holding the asset/liability,Elements of the definition,Transaction and transport costs,Transactions costs are incremental direct costs that would not have been incurred had the decisions to sell the asset/transfer the liability not been made.,Transport costs are the costs incurred to transport an asset from its current location to its principal market.,Both affect the determination of fair value eg transaction costs are relevant in determining the most advantageous market. (Refer example 5.1 of text),HOWEVER, the price used to measure FV is NOT adjusted for these costs.,Elements of the definition,AASB 13 applies to:,Non-financial assets; and,Liabilities and equity.,Four step process in making a FV measurement:,Determine the asset or liability that is the subject of the measurement.,Determine the valuation premise that is appropriate.*,Determine the principal or most advantageous market.,Determine the appropriate valuation technique.,* Relevant for non-financial assets only,Each step is discussed on the following slides.,Application of AASB 13,This step involves considering characteristics that market participants would take into account when pricing an asset or liability.,Relevant questions to consider include:,What is the location of the asset?,What is the condition of the asset?,Are there any restrictions on sale or use of the asset?,Is the asset or liability a stand-alone asset or it is a group of assets?,Step 1: Determine the asset or liability that is the subject of the measurement,In combination valuation premise,FV is determined under this premise where market participants would obtain maximum benefit principally through using the asset,in combination with other assets and liabilities as a group.,The asset will be sold as an individual asset, not as a group, but the asset will be used by the market participant in conjunction with other assets.,Stand-alone valuation premise,FV is determined under this premise where market participants would obtain maximum benefit principally through using the asset,on a stand-alone basis.,Step 2: Determine the valuation premise that is appropriate,FV measurement assumes that the transaction takes place in either the principal market or most advantageous market,Principal market the market with the greatest volume and level of activity,Most advantageous market the market that would maximise the amount received/paid after deducting transaction and transport costs,Refer example 5.4 of text,Step 3: Determine the principal or most advantageous market,Inputs,When applying a technique the use of observable inputs needs to be maximised and unobservable inputs minimised.,Observable inputs are developed using market data, such as publicly available information.,Unobservable inputs are those where market data is not available and are developed using the best information available,To achieve consistency and comparability AASB 13 provides a hierarchy of inputs.,Step 4: Determine the appropriate valuation technique,Level 2 inputs,Defined as:,“.inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.”,Included within this definition are:,Quoted prices for similar assets in active markets,Quoted prices for identical items in inactive markets,Inputs other than quoted prices that are observable eg interest rates, credit risks,Inputs that are derived from or corroborated by observable market data by correlation or there means,Fair value hierarchy,Level 3 inputs,Defined as:,“.unobservable inputs for the asset or liability.”,In this case the data may be that of the entity itself, adjusted for market factors.,Examples of where level 3 inputs would be used include when valuing:,Cash generating units,Trademarks,Accounts receivable,Fair value hierarchy,For financial liabilities there is often an observable market and a quoted price may be obtained to measure the FV of the liability.,Measurement of the financial liability will depend on whether there or not a corresponding asset is held by another entity.,Application to liabilities,Corresponding asset,Measurement should be in the following order:,the quoted price of the asset in an active market,the quoted price for the asset in an inactive market,a valuation under a technique such as the income or market approach,Example 5.7 demonstrates a situation where an entity uses a market approach valuation technique for a liability.,Application to liabilities,No corresponding asset,Example: an,entity that,must decommission an oil platform when drilling ceases,Measurement must be done by applying a valuation technique from the perspective of a market participant that owes the liability.,A present value technique could be applied.,Example 5.8 shows an example of the use of the present value technique for a simple debt obligation,Example 5.9 shows an example for a non-financial liability such as a decommissioning liability,Application to liabilities,Non performance risk,The fair value of a liability will reflect the effect of non-performance risk.,Defined as:,“.the risk that an entity will not fulfil an obligation. Non-performance risk includes, but may not be limited to, the entitys own credit risk.”,Example 5.10 demonstrates the valuation of liabilities with a consideration of non-performance risk.,Application to liabilities,Measurement of equity instruments is needed where an entity issues its own equity instruments in exchange for a business as part of a business combination,The principles in relation to liabilities also apply to equity instruments.,The company must measure the fair value of the equity instrument from the perspective of a market participant who holds the instrument as an asset.,Application to equity instruments,Offsetting positions,Entities may hold both financial assets and financial liabilities, and as such is exposed to both market risk and credit risk.,Where these assets and liabilities are managed as a group, AASB 13 allows an entity to measure the net financial asset or net financial liability,This exception may be only be applied where an entity manages the group of financial assets and liabilities on a net exposure basis as a part of its documented risk management strategy.,Issues in measuring financial instruments,AASB 13 requires an entity to disclose information that enables users to assess both of the following:,for assets and liabilities that are measured at fair value on a recurring or non-recurring basis in the statement of financial position after initial recognition, the valuation techniques and inputs used to develop those measurements.,for recurring fair value measurements using significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income for the period.,Detailed disclosures contained in section 5.7 of text,Disclosure,How reliable are the FV numbers?,Consider unobservable data,Does past experience warn us against the extensive use of FV?,Consider Enron,Are the FV measure not based on directly observable market prices costly to determine?,Expensive exercise for management,Should measure based on unobservable inputs be called FV?,Highly subjective. How relevant and reliable are they?,Can FV be prescribed before the finalisation of the Conceptual Framework?,Questions about fair value measurement,