IFRS 13 requires disclosure of sufficient information to help financial statement users assess: valuation techniques and inputs used to develop both recurring and nonrecurring measurements of assets and liabilities carried at fair value after initial recognition; and the effect on profit or loss or other comprehensive income of recurring Level 3 fair value measurements.

Additional disclosures beyond the minimum requirements might be required to meet these objectives. The reporting entity should also consider: the level of detail necessary; the degree of emphasis on each requirement; the degree of aggregation or disaggregation; and whether or not additional information is needed to evaluate the quantitative disclosures.

Other additional guidance on disclosures can be found as follows:

Scope of disclosure requirements

In line with the general scope of IFRS 13, the disclosure requirements of IFRS 13 generally apply whenever assets or liabilities are measured at fair value (or using a measurement based on fair value). The general disclosure requirements of IFRS 13 do not apply to the following:

• plan assets measured at fair value by IAS 19;
• retirement benefit plan investments measured at fair value by IAS 26; and
• assets for which the recoverable amount is fair value less costs of disposal by IAS 36.

The majority of IFRS 13’s disclosure requirements apply only to assets and liabilities measured in the statement of financial position at fair value. Certain of these requirements are specified for assets and liabilities not measured at fair value in the statement of financial position but for which the fair value is disclosed.

IFRS 13’s disclosure requirements do not apply to fair value measurements at initial recognition; the disclosures required when a fair value measurement is used at initial recognition are dealt with in other IFRS Standards (e.g., IFRS 3 regarding the measurement of assets acquired and liabilities assumed in a business combination).

For each disclosure requirement, the Standard is explicit as to whether it applies with respect to ‘recurring’ fair value measurements, ‘non-recurring’ fair value measurements, or both.

Recurring fair value measurements are those that other IFRS Standards require or permit in the statement of financial position at the end of each reporting period (e.g., investment property measured at fair value at the end of each reporting period under IAS 40. Non-recurring fair value measurements are those that other IFRS Standards require or permit in the statement of financial position in particular circumstances (e.g., an asset held for sale measured at fair value fewer costs to sell under IFRS 5, because it meets the criteria for classification as held for sale and fair value less costs to sell, is lower than its carrying amount).

Classes of assets and liabilities

For IFRS 13’s disclosure requirements, assets and liabilities are segregated into ‘classes’. Entities are required to determine appropriate classes of assets and liabilities based on:

• the nature, characteristics, and risks of the asset or liability; and
• the level of the fair value hierarchy within which the fair value measurement is categorized.

The following additional guidance is provided:

• a class of assets and liabilities will often require greater disaggregation than the line items presented in the statement of financial position. However, the entity is required to provide information sufficient to permit reconciliation to the line items presented in the statement of financial position;
• if another IFRS specifies the class for an asset or a liability, the entity may use that class to provide the disclosures under IFRS 13 if that class meets the requirements set out in IFRS 13; and
• the number of classes may need to be greater for fair value measurements classified within Level 3 of the fair value hierarchy because those measurements have a greater degree of uncertainty and subjectivity.

The identification of appropriate classes of assets and liabilities for which disclosures about fair value measurements should be provided requires the exercise of judgement.

Financial and non-financial items measured at fair value

Disclosures regarding financial and non-financial items measured at fair value – general

At a minimum, the information set out is required to be disclosed for each class of assets and liabilities measured at fair value in the statement of financial position after initial recognition (including measurements based on fair value within the scope of IFRS 13, e.g.,. fair value less costs to sell).

Fair value measurements by class of assets or liabilities

For recurring and non-recurring fair value measurements, an entity is required to disclose the fair value measurement at the end of the reporting period.

Reasons underlying non-recurring measurements

For non-recurring fair value measurements, an entity is required to disclose the reasons for the measurement.

Level within the fair value hierarchy

For recurring and non-recurring fair value measurements, an entity is required to disclose the level within the fair value hierarchy within which the fair value measurements are categorised in their entirety (i.e. Level 1, 2 or 3).

Transfers within the fair value hierarchy

For assets and liabilities held at the end of the reporting period that are measured at fair value on a recurring basis, an entity is required to disclose:

• the amounts of any transfers between Level 1 and Level 2 of the fair value hierarchy;
• the reasons for those transfers; and
• the entity’s policy for determining when transfers between levels are deemed to have occurred (see below).

Transfers into each level are required to be disclosed and discussed separately from transfers out of each level.

An entity is required to disclose and consistently follow its policy for determining when transfers between levels of the fair value hierarchy are deemed to have occurred. The policy must be the same for transfers in and transfers out of the levels. Examples of policies for determining the timing of transfers include the following:

• the date of the event or change in circumstances that caused the transfer;
• the beginning of the reporting period; and
• the end of the reporting period.

Valuation techniques and inputs (Levels 2 and 3)

For recurring and non-recurring fair value measurements categorised within Level 2 and Level 3 of the fair value hierarchy, an entity is required to disclose:

• a description of the valuation technique(s) and the inputs used in the fair value measurement; and
• if there has been a change in valuation technique (e.g.,. changing from a market approach to an income approach or the use of an additional valuation technique), details of the change and the reason(s) for making the change.

Disclosure of valuation techniques and inputs The objective of these disclosures is to help users of the financial statements understand not only the valuation techniques and inputs used, but also the judgements made by the entity when measuring fair value. When developing the disclosures required under IFRS 13 about valuation techniques and the overall valuation process, entities may wish to consider the description of valuation techniques and processes in the IASB Expert Advisory Panel’s October 2008 report Measuring and disclosing the fair value of financial instruments in markets that are no longer active. This report notes that a description of valuation techniques is important to enable users to understand the subjectivity and the judgements that are a part of measuring fair values. Specifically, for fair value measurements in Level 2 or Level 3 of the fair value hierarchy, the report indicates that information that an entity might consider disclosing about the valuation techniques and inputs used includes: whether the entity can choose between various valuation techniques and how it makes that choice; a description of the valuation techniques selected and the risks or shortcomings (if any) of those techniques. When a model is used, a description of the model and related inputs, and how the inputs are sourced by the entity; if the valuation technique has changed since previous reporting periods, the reason why the entity made the change and a quantification of the impact on the financial statements; the methods the entity uses to calibrate models to market prices, and the frequency of calibration; a description of the use of broker quotes or pricing services, which may include how many quotes were obtained, how these quotes were verified, what brokers or pricing services the entity used and why, whether quotes are adjusted, whether a quote is binding or non-binding and how the ultimate fair value used was determined; when an entity measures fair value by using prices for similar instruments, how the entity adjusts these prices to reflect the characteristics of the instruments subject to the measurement; the key drivers of value for each significant Level 2 and Level 3 asset/liability class and the extent to which the inputs used are observable or unobservable; an entity’s consideration of illiquidity when performing the valuation; and a description of how the entity’s and counterparty’s non-performance risk was taken into consideration in the valuation (e.g.,. for derivatives or debt instruments).

Quantitative information about significant unobservable inputs (Level 3)

For recurring and non-recurring fair value measurements categorised within Level 3 of the fair value hierarchy, an entity is required to provide quantitative information about the significant unobservable inputs used in the fair value measurement.

An entity is not required to create quantitative information to comply with this disclosure requirement if quantitative unobservable inputs are not developed by the entity when measuring fair value (e.g.,. when an entity uses prices from prior transactions or third-party pricing information without adjustment). However, when providing this disclosure, an entity cannot ignore quantitative unobservable inputs that are significant to the fair value measurement and are reasonably available to the entity.

Having regard to the general requirements of IFRS 13, an entity might disclose some or all of the following information in order to help users of its financial statements to evaluate the quantitative information disclosed under IFRS 13:

• the nature of the item being measured at fair value, including the characteristics of the item being measured that are taken into account in the determination of relevant inputs. For example, for residential mortgage-backed securities, an entity might disclose the following:
  • the types of underlying loans (e.g.,. prime loans or sub-prime loans);
  • collateral;
  • guarantees or other credit enhancements;
  • seniority level of the tranches of securities;
  • the year of issue;
  • the weighted-average coupon rate of the underlying loans and the securities;
  • the weighted-average maturity of the underlying loans and the securities;
  • the geographical concentration of the underlying loans; and
  • information about the credit ratings of the securities; and
• how third-party information such as broker quotes, pricing services, net asset values and relevant market data was taken into account when measuring fair value.

Reconciliation of fair value measurements (Level 3 recurring)

For recurring fair value measurements categorised within Level 3 of the fair value hierarchy, IFRS 13 requires a reconciliation from the opening to the closing balances.

The reconciliation should include separate disclosure of changes during the period attributable to the following:

1. total gains or losses for the period recognised in profit or loss, and the line item(s) in profit or loss in which those gains or losses are recognised;
2. total gains or losses for the period recognised in other comprehensive income, and the line item(s) in other comprehensive income in which those gains or losses are recognised;

• purchases, sales, issues and settlements (each of those types of changes disclosed separately); and

1. the amounts of any transfers into or out of Level 3 of the fair value hierarchy, the reasons for those transfers, and the entity’s policy for determining when transfers between levels are deemed to have occurred.

Transfers into Level 3 are required to be disclosed and discussed separately from transfers out of Level 3.

The Standard cites the following examples of policies for determining the timing of transfers:

• the actual date of the event or change in circumstances that caused the transfer;
• the beginning of the reporting period; and
• the end of the reporting period.

In addition, IFRS 13 requires that:

• an entity should disclose and consistently follow its policy for determining when transfers between levels of the fair value hierarchy are deemed to have occurred; and
• the entity’s policy regarding the timing of recognising transfers should be the same for transfers into the levels as that for transfers out of the levels.

Disclosure of transfers between levels of the fair value hierarchy for recurring fair value measurements The ‘amounts’ to be disclosed for transfers between the levels of the fair value hierarchy in accordance with IFRS 13 should be the fair values of the items transferred. However, IFRS 13 is not prescriptive as to the timing of the recognition of the transfers (i.e. the date at which the fair values of the transferred items should be measured). It would not be appropriate for an entity to determine the amount of ‘transfers in’ by using the beginning-of-period fair value and the amount of ‘transfers out’ by using the end-of-period fair value. Example – disclosure of transfers into and out of Level 3 Entity R holds two securities and is preparing its quarterly financial statements for the period ended 30 September. Security A was a Level 2 measurement at the beginning of the period (1 July) and transferred into Level 3 on 15 July. Security B was a Level 3 measurement at the beginning of the period (1 July) and transferred out of Level 3 into Level 2 on 15 August. The fair values of Securities A and B at the beginning and end of the period, and at the actual dates of transfer, are set out below. Fair value At date of transfer At 1 July At 30 September CU CU CU Security A 125 (15 July) 150 50 Security B 250 (15 August) 150 300 The following table sets out the amounts that would be disclosed by Entity R for transfers into and out of the Level 3 hierarchy using each of the example methods identified in IFRS 13. The table also sets out the amount of gain/(loss) included in profit or loss that would be reflected in the reconciliation of fair value changes in Level 3 as required by IFRS 13. Method 1 Method 2  Method 3  Fair value at actual date of transfer Fair value at beginning of reporting period  Fair value at end of reporting period  Impact on levels CU CU  CU  Security A Level 2 transfer-out value (125) (150) (50) Level 3 transfer-in value 125 150 50 Loss reflected in Level 3 reconciliation (75) (100) – Security B Level 2 transfer-in value 250 150 300 Level 3transfer-out value (250) (150) (300) Gain reflected in Level 3 reconciliation 100 – 150

In addition, an entity is required to disclose the amount of the total gains or losses recognised in profit or loss in the period (and included in the Level 3 reconciliation) that is attributable to the change in unrealised gains or losses relating to those assets and liabilities held at the end of the reporting period, and the line item(s) in profit or loss in which those unrealised gains or losses are recognised.

Fair value disclosure – application of the requirement in IFRS 13 to financial assets transferred out of Level 3 but still held at the end of the reporting period An entity should disclose the changes in unrealised gains or losses included in profit or loss whilst assets and liabilities are categorised as Level 3 in accordance with IFRS 13:93(f), irrespective of the level in which those assets and liabilities are categorised at the end of the reporting period, as long as they are still held at the end of the reporting period. For example, in the illustration, above for Security B the amount disclosed under IFRS 13:93(f) should include the CU100 unrealised gain that arose while Security B was categorised as Level 3 even though it is not categorised as Level 3 at the end of the reporting period. If Security B had been sold before the end of the reporting period, the amount disclosed under IFRS 13 would have excluded that CU100 gain. One of the objectives of the fair value disclosure requirements in IFRS 13 is to provide information that helps users of its financial statements assess the effect on profit or loss or other comprehensive income for the period of recurring fair value measurements using significant unobservable inputs. Omitting from the amounts disclosed under IFRS 13 the effect of unrealised gains or losses relating to the financial assets transferred out of Level 3 but still held at the end of the reporting period would not achieve this objective.

Valuation processes (Level 3)

For recurring and non-recurring fair value measurements categorised within Level 3 of the fair value hierarchy, an entity is required to disclose a description of the valuation processes used (including, for example, how an entity decides its valuation policies and procedures and analyses changes in fair value measurements from period to period).

An entity might disclose the following information in order to comply with IFRS 13:

• for the group within the entity that decides the entity’s valuation policies and procedures:
  • its description;
  • to whom that group reports; and
  • the internal reporting procedures in place (e.g.,. whether and, if so, how pricing, risk management or audit committees discuss and assess the fair value measurements);
• the frequency and methods for calibration, back testing and other testing procedures of pricing models;
• the process for analysing changes in fair value measurements from period to period;
• how the entity determined that third-party information, such as broker quotes or pricing services, used in the fair value measurement was developed in accordance with IFRS 13; and
• the methods used to develop and substantiate the unobservable inputs used in a fair value measurement.

Sensitivity to changes in significant unobservable inputs (Level 3 recurring)

For recurring fair value measurements categorised within Level 3 of the fair value hierarchy, an entity is required to provide a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement. If there are interrelationships between those inputs and other unobservable inputs used in the fair value measurement, the entity is also required to provide a description of those interrelationships and of how they might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement. To comply with that disclosure requirement, the narrative description of the sensitivity to changes in unobservable inputs should include, at a minimum, the unobservable inputs disclosed when complying with IFRS 13.

Sensitivity to changes in significant unobservable inputs (Level 3 recurring – financial assets and financial liabilities)

For recurring fair value measurements of financial assets and financial liabilities categorised within Level 3 of the fair value hierarchy, if changing one or more of the unobservable inputs to reflect reasonably possible alternative assumptions would change fair value significantly, an entity is required to state that fact and disclose the effect of those changes.

The entity is required to disclose how the effect of a change to reflect a reasonably possible alternative assumption was calculated. For that purpose, significance is required to be judged with respect to profit or loss, and total assets or total liabilities, or, when changes in fair value are recognised in other comprehensive income, total equity.

Highest and best use of non-financial asset differs from its current use

For recurring and non-recurring fair value measurements, if the highest and best use of a non-financial asset differs from its current use, an entity should disclose that fact and why the non-financial asset is being used in a manner that differs from its highest and best use.

Liability measured at fair value and issued with an inseparable third-party credit enhancement

For a liability measured at fair value and issued with an inseparable third-party credit enhancement, an issuer is required to disclose the existence of that credit enhancement and whether it is reflected in the fair value measurement of the liability.

Financial and non-financial items for which fair value is disclosed

For each class of assets and liabilities not measured at fair value in the statement of financial position but for which the fair value is disclosed, an entity is required to disclose the information required by IFRS 13.

However, an entity is not required to provide the quantitative disclosures about significant unobservable inputs used in fair value measurements categorised within Level 3 of the fair value hierarchy required by IFRS 13.

For such assets and liabilities, an entity does not need to provide the other disclosures required by IFRS 13.

IAS 39 disclosure of remeasurement of a financial asset carried at amortised cost Question:  Is the remeasurement of a financial asset, which is measured at amortised cost to an observable market price for impairment purposes (IAS 39 – this practical expedient has been removed in IFRS 9), subject to the disclosure requirements of IFRS 13?  Solution: In our view, the instrument is still considered to be at amortised cost, and so the non-recurring fair value disclosures are not required.

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How are unrealised gains and losses, to be disclosed for recurring Level 3 measurements, calculated? No guidance is provided in the standard as to how these should be calculated. There are three methods that could be acceptable, provided that they are consistently applied: ·        ‘Balance sheet view’: Determine unrealised gains and losses as the fair value of the security less its amortised cost basis. This view holds that gains and losses are realised at maturity or sale date, so the entire gain or loss is considered unrealised until maturity. ·        ‘Income statement view’: Determine unrealised gains and losses as the total gains and losses during the period less the cash received or paid for those items. This view holds that each cash receipt or settlement represents a realised gain or loss in its entirety. ·        ‘Cash flow view’: First, determine any realised gains or losses as the difference between expected cash flows at the beginning of the period and actual cash flows for the period. Then, determine unrealised gains or losses for items still held at the reporting date as the remaining expected cash flows for future periods at the end of the period less the remaining expected cash flows for future periods at the beginning of the period.

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Should IFRS 13 disclosures be made for short-term receivables and payables for which the entity is claiming the IFRS 7 exemption not to disclose the fair value of such items? An entity taking this exemption usually makes a statement that the carrying value of these items approximates to fair value. In our view, this does not trigger the requirement to make IFRS 13 disclosures, and so these items do not need to form part of the fair value hierarchy.

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Is qualitative sensitivity analysis for recurring fair value measurements, as required by IFRS 13, sufficient to comply with IFRSs? IFRS 13 requires only qualitative sensitivity analysis for recurring fair value measurements of non-financial assets in Level 3 of the fair value hierarchy. However, entities with significant balances in these categories (for example, those owning portfolios of investment properties) might find that a quantitative analysis is required to meet the requirements of IAS 1, because the assumptions are critical judgements made in determining the carrying values of those assets.

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Summary of the application of IFRS 13’s disclosure requirements The disclosures required in respect of a fair value measurement vary depending on whether the fair value measurement is recognised in the statement of financial position on a recurring or a non-recurring basis or is only disclosed in the notes to the financial statements. The following table summarises the application of the disclosure requirements in IFRS 13. The quantitative disclosures should be presented in a tabular format unless another format is more appropriate.   Assets and liabilities measured at fair value (FV) in the statement of financial position after the date of initial recognition   Required disclosure Recurring Non-recurring FV disclosed in notes only Fair value at the reporting date X X X Reason for the fair value measurement X The level of the fair value measurement in the fair value hierarchy X X X For assets and liabilities held at the reporting date, amounts of transfers between Levels 1 and 2 (separately for transfers into and out of each level), the reasons for those transfers, and the entity’s policy for determining that a transfer has occurred X For Level 2 and Level 3 measurements, a description of the valuation techniques and inputs used X X X For Level 2 and Level 3 measurements for which there has been a change in valuation technique, the nature of that change and reason for it X X X For non-financial assets with a highest and best use that differs from its current use, that fact and why the asset is being used in a manner different from its highest and best use X X X Information sufficient to permit a reconciliation between the amounts disclosed for classes of assets and liabilities by level of the fair value hierarchy and the line items presented in the statement of financial position X X Not required by IFRS 13 but may be required by other IFRS Standards If an entity chooses as its accounting policy to use the portfolio valuation exception permitted by IFRS 13, that fact X For liabilities measured at fair value, the existence of inseparable third-party credit enhancements and whether they are reflected in the fair value measurement of the liabilities X X The disclosures below only apply to Level 3 fair value measurements Quantitative information about the significant unobservable inputs used in the fair value measurement X X Reconciliation of movements in fair value from opening to closing balances, showing separately: total gains and losses recognised in profit or loss (including the line items in profit or loss); X total gains and losses recognised in other comprehensive income (including the line items in other comprehensive income); X purchases, sales, issues, settlements (each disclosed separately); and X the amounts of transfers into and out of Level 3 separately (including the reasons for those transfers and the entity’s policy for determining that a transfer has occurred) X Amount of total gains and losses for the period recognised in profit or loss that is attributable to the change in unrealised gains or losses for those assets or liabilities held at the reporting date, and the line items in profit or loss in which those unrealised gains or losses are recognised X Description of the valuation processes used, including a discussion of how the entity decides on valuation policies and procedures and how it analyses changes in fair value from period to period X X Narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs might result in a significantly different fair value measurement and a description of the interrelationships between those inputs and other unobservable inputs, if any, including how those interrelationships might magnify or mitigate the impact on fair value arising from changes in such inputs. The narrative description of the sensitivity should include, as a minimum, all significant unobservable inputs used in the fair value measurement X For financial assets and liabilities, when a change in one or more of the unobservable inputs to reflect reasonably possible alternative assumptions would change fair value significantly, that fact, the effect of those changes, and how the effect of such a change is calculated X