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IFRS 13 — Fair value hierarchy

Date recorded:

The Project manager introduced the agenda paper. He said that the purpose of the paper was to provide a feedback summary from the additional outreach performed by the staff following a request made by the Committee members. He said that the Committee members would not be asked to make any decisions as a result of this feedback and the paper did not present the staff’s view.  He recapped that in September 2014 the Interpretations Committee published a tentative agenda decision not to add to its agenda a request to clarify the circumstances in which prices provided by third parties (especially consensus prices) would qualify as a Level 1 input in the fair value hierarchy in IFRS 13 Fair Value Measurement. At that time the Interpretations Committee considered the results of outreach request that had been performed by the staff. The outreach had indicated that there was no significant diversity observed in practice on this issue. The Interpretations Committee observed that this issue was not widespread and that the guidance in IFRS 13 was sufficient to draw an appropriate conclusion on the issue submitted. The Interpretations Committee therefore determined that neither an Interpretation nor an amendment to the Standard was necessary.

In January 2015, the staff presented an analysis of comment letters received relating to the above tentative agenda decision. In considering the comments received, the Interpretations Committee noted that a fair value measurement that was based on prices provided by third parties may only be categorised within Level 1 of the fair value hierarchy if the measurement relies solely on unadjusted quoted prices in an active market for an identical instrument that the entity can access at the measurement date. Consequently, the Interpretations Committee determined that neither an Interpretation nor an amendment to a Standard was necessary and decided not to add this issue to its agenda. However, in finalising the agenda decision, the Interpretations Committee noted that it would be helpful to further understand the additional questions raised by respondents during the comment period and requested that additional outreach be undertaken for information purposes. In this regard, the Interpretations Committee would not be asked to make any decisions when such feedback was presented.

The project manager summarised the results of the additional outreach conducted on the following questions:

(a) What classification within the fair value hierarchy is appropriate for a financial instrument when the fair value measurement is based on a model or valuation technique that only used unadjusted quoted prices or Level 1 inputs?;

(b) Could certain types of quotes or executable prices (for example, third party quotes that represented binding offers) as opposed to actual transaction prices be considered to meet the definition of Level 1 inputs?

The project manager said that in relation to the first question, the majority of respondents stated that a fair value measurement in this case would not be level 1 because the use of a model for a valuation technique implied that there was no active market, and that the prices were not pure market prices. Others said that it could be considered level 1, however they did not provide any argument.

He then said that in relation to question 2 most respondents indicated that they could be considered level 1 subject to assessment of relevant facts and circumstances.

One Committee member asked how the process would move from here. The Project manager responded that since there was not much diversity in practice he would consider finalising the agenda decision and said that there was no need to continue working on this topic.

The majority of Committee members expressed agreement with his assessment and agreed that the agenda decision was appropriately written.

Only one Committee member indicated that he would prefer continuing analysis of the topic even though there was consistency there were still diverging views.

The Project manager commented that there was a market perception that the levels in IFRS 13 were based on the risk of the asset involved which was not that the standard was trying to do. However, the analysis of those perceptions was not part of the project.

Another Committee member said that the comments reflected consistency in practice although there were concerns in relation to perception. He said that the focus was on level 3 inputs and not on level 1 or 2 which were under discussion on this project.

The Chairman concluded that there was agreement with finalising the agenda decision and given the outreach conducted no further work was needed. The Project manager clarified that the IFRIC update would include that conclusion.

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