ACCA SBR ^INT Syllabus C. Reporting The Financial Performance Of A Range Of Entities - Definitions Of ‘Fair Value’ & ‘Active Market’ - Notes ^{1 / 3}

IFRS 13 defines Fair Value using an 'exit price' notion and a 'fair value hierarchy'

So it's a market-based, rather than entity-specific, measurement

Fair Value Definition

The price that would be received  / paid .... 
...in an orderly transaction between market participants

Active Market Definition

A market with sufficient frequency and volume to provide pricing information on an ongoing basis

Exit Price Definition

The price that would be received (to sell an asset) or paid (to transfer a liability)

Overview of Approach

A fair value measurement requires an entity to determine all of the following:

1. The particular asset (liability) and its unit of account

2. For a non-financial asset: An appropriate valuation premise (it's highest and best use)

3. Its principal (or most advantageous) market

4. Its appropriate valuation technique using market data and the fair value hierarchy