AASB 13: Fair Value Measurement

Running Head: Fair Value Measurement
AASB 13: Fair Value Measurement

Fair Value Measurement 1
The Australian Accounting Standard Board has introduced AASB 13 Fair Value
Measurement with the aim of providing guidance on fair value accounting. The said standard
has been issued wide section 334, Corporations Act, 2001. This accounting standard was
made applicable to the entities for the annual reporting periods commencing from 1st January,
2013. However, it can also be applied to the reporting periods after 1st January, 2005. If entity
applies this standard during the reporting periods between the years 2005-2013, then it shall
make a disclosure of this fact in its financial reports. AASB 13 provides the definition of fair
value. It is the amount which is received on sale of an asset or paid on transferring a liability
as a result of a transaction that takes place between the market participants, on the
measurement date.
The accounting standard on fair value measurement prescribes that the said measurement is
done for the particular asset and liability. Hence, while measuring their fair values entities
must take into consideration the features of those assets and liabilities that market participants
would have considered while pricing them at the date of measurement. Those characteristics
include: asset’s condition and location and the restrictions on disposal of asset (AASB
Standard, 2011).
Fair value measurement is based on market conditions and hence it is not entity specific. In
case of certain assets and liabilities, similar market transactions or relevant information is
available in the market but for the other assets and liabilities similar market transactions or
relevant market information is not available. However, in either cases, the basic objective
behind fair value measurement remains same i.e. the determination of the value at which an
order transaction of asset sale or liability transfer will take place between the market players
on the date of measurement under the given market conditions. In those cases where the price
of alike asset or liability is not available, another valuation techniques are used which can
maximise the use of evident inputs and lessen the use of unrealistic input. An entity must use