What is Fair Value (IFRS 13)?
IFRS 13 defines fair value as 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 (an exit price). The standard establishes a fair value hierarchy with three levels based on the observability of the inputs used.
How It Works
- Identify the asset or liability to be measured at fair value and the principal (or most advantageous) market.
- Select a valuation technique: market, cost, or income approach.
- Classify the inputs into the fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), Level 3 (unobservable inputs).
- Disclose the valuation techniques, key inputs, and any transfers between levels in the notes.
Saudi Context
Saudi listed companies use Level 1 fair value for Tadawul-quoted equities, Level 2 for OTC derivatives priced from observable yield curves, and Level 3 for unlisted private equity stakes and real estate. The CMA expects detailed Level 3 disclosure, and ZATCA reviews fair value movements that affect zakat base.
Example
A Saudi insurer holds SAR 80 million Tadawul-listed equities (Level 1), SAR 30 million OTC sukuk priced from SAMA yield curves (Level 2), and SAR 15 million unlisted real estate (Level 3). All three are disclosed with their valuation inputs.