What Is Fair Value

Published: 2021-06-29 06:59:32
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Category: Business

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2. THE DEFINITION OF FAIR VALUE

2.1 What is Fair Value?

The definition of fair value per AASB 13 Fair Value Measurement below incorporates a number of concepts.
Figure 1: Definition of Fair Value

Exit price
This is the price that would be received if the entity sold the asset.
Orderly transaction
A transaction is orderly if it allows sufficient time for the usual marketing activities for the asset. Therefore, orderly transactions do not include those transactions that are forced, such as liquidations.
Market participants
Fair value measurements are based on transactions that occur between market participants who are:
• independent of each other;
• knowledgeable about the asset and the transaction; and
• able and willing to enter into a transaction for the asset i.e. not being compelled to do so.
Measurement date

Fair value is...
based on a market participant’s expectations

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