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IFRS 13

Fair Value Measurement

IFRS 13 defines fair value as an exit price, sets out a single framework for measuring it (including the fair value hierarchy of Level 1, 2 and 3 inputs), and prescribes disclosures about fair value measurements, applying whenever another Standard requires or permits fair value measurement, without itself determining when fair value is used. [S1]

Effective 2013-01-01Related: IAS 16 · IAS 36 · IAS 40 · IFRS 9

Overview

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, from the perspective of a market participant who holds the asset or owes the liability, not the entity's own entry price or intended use. [S1] It establishes a three-level fair value hierarchy that prioritises the inputs used in valuation techniques: Level 1 (quoted prices in active markets for identical items), Level 2 (observable inputs other than quoted prices, either direct or indirect), and Level 3 (unobservable inputs). [S2]

Why it matters

Fair value measurement runs through a large share of IFRS — investment property, certain financial instruments, biological assets, share-based payments, business combinations, and impairment testing all depend on it — and IFRS 13's framework is what disciplines that measurement so it isn't just management's opinion. In markets like Nigeria's, where active, liquid markets for many assets simply don't exist, the fair value hierarchy and its disclosure requirements are what force transparency about how much of a valuation rests on hard market evidence versus internal assumptions.

Scope

Applies whenever another IFRS requires or permits fair value measurements or disclosures about fair value measurements (including measurements based on fair value, such as fair value less costs to sell or value in use for impairment testing under IAS 36, and fair value less costs to sell for non-current assets held for sale under IFRS 5). It does not apply to share-based payment transactions within IFRS 2, lease transactions within IFRS 16, or measurements that have some similarities to fair value but are not fair value (e.g. net realisable value in IAS 2 or value in use in IAS 36), and it does not itself establish disclosure requirements for fair values related to employee benefits or retirement plans.

Key definitions

term
Fair value
definition
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).
term
Principal market
definition
The market with the greatest volume and level of activity for the asset or liability that the entity can access; in the absence of a principal market, the most advantageous market.
term
Highest and best use
definition
The use of a non-financial asset by market participants that would maximise its value, considering uses that are physically possible, legally permissible and financially feasible.
term
Level 1 inputs
definition
Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
term
Level 2 inputs
definition
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
term
Level 3 inputs
definition
Unobservable inputs for the asset or liability, used when relevant observable inputs are not available.
term
Non-performance risk
definition
The risk that an entity will not fulfil an obligation, including but not limited to the entity's own credit risk, which must be reflected in the fair value of a liability.

Recognition

IFRS 13 does not itself trigger recognition of any asset or liability at fair value; another Standard determines whether and when fair value measurement applies (for example, IAS 40's fair value model for investment property, or IFRS 9 for particular classes of financial instruments). Once fair value measurement is required or elected, IFRS 13 governs how that measurement is performed: identifying the asset or liability, its principal (or most advantageous) market, the valuation premise (highest and best use for non-financial assets, or the perspective of the market participant transferee/holder for liabilities and equity instruments), and an appropriate valuation technique.

Initial measurement

Fair value is measured using assumptions market participants would use, maximising the use of relevant observable inputs and minimising unobservable inputs. Three valuation approaches are recognised: the market approach (prices and other relevant information from market transactions involving identical or comparable assets/liabilities), the cost approach (current replacement cost), and the income approach (converting future cash flows or income and expenses to a single discounted present value, e.g. present value techniques or option-pricing models). The technique used should maximise observable inputs; a change in valuation technique or its application is treated as a change in accounting estimate under IAS 8.

Subsequent measurement

Fair value is reassessed at each measurement date required by the Standard mandating fair value (e.g. each reporting date for investment property under the IAS 40 fair value model), using market conditions and assumptions as at that date, not conditions at initial recognition. Transfers between levels of the fair value hierarchy are recognised as of the date of the event or change in circumstances causing the transfer, with the entity's policy for the timing of recognising such transfers applied consistently.

Presentation

Fair value gains and losses are presented in profit or loss or other comprehensive income depending on the requirements of the Standard governing the specific asset or liability (e.g. profit or loss for IAS 40 fair value model investment property; a mix of profit or loss and OCI depending on classification for financial instruments under IFRS 9). IFRS 13 itself prescribes disclosure, not presentation, requirements, focused on enabling users to assess the valuation techniques and inputs used, and the effect of Level 3 measurements on profit or loss or OCI for the period.

Disclosure checklist

  • For assets and liabilities measured at fair value on a recurring or non-recurring basis: the fair value hierarchy level within which the measurement falls in its entirety (Level 1, 2 or 3).
  • For Level 2 and Level 3 measurements: a description of the valuation technique(s) and inputs used, and any changes in valuation technique with the reason for the change.
  • For Level 3 measurements: quantitative information about significant unobservable inputs, a reconciliation of opening to closing balances (purchases, sales, issues, settlements, transfers into/out of Level 3, and gains/losses recognised in profit or loss or OCI), and a description of the valuation processes used.
  • For Level 3 measurements of assets and liabilities held at the reporting date: a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs, if a change would result in a significantly higher or lower fair value.
  • The amount of any transfers between Level 1 and Level 2 of the hierarchy, the reasons for the transfers, and the entity's policy for determining when transfers are deemed to have occurred.
  • For non-financial assets, the highest and best use assumption if it differs from the asset's current use, and why.

Practical treatment

The practical starting discipline is being honest about which hierarchy level a valuation actually falls into — the entire measurement is classified at the lowest level input that is significant to it, so a valuation built mostly on observable market comparables but adjusted using one significant unobservable assumption is a Level 3 measurement in its entirety, not Level 2. [S5] For non-financial assets without an active market (the norm for much Nigerian real estate, unlisted equity, and specialised plant), this typically means a market approach using adjusted comparable transactions, or an income approach using discounted cash flows, both requiring documented, defensible assumptions and disclosed sensitivity to key unobservable inputs. See nigeria_notes for the practical valuation evidence challenges specific to the Nigerian market and the interaction with the FRCN's valuation framework.

Common mistakes

  • Classifying a valuation as Level 2 when it actually relies on one or more significant unobservable adjustments, which should push the entire measurement to Level 3.
  • Using the entity's own intended use of a non-financial asset as the valuation premise instead of assessing highest and best use from a market participant perspective.
  • Omitting the Level 3 reconciliation and sensitivity disclosures required for material fair value measurements that rely on unobservable inputs.
  • Ignoring non-performance risk (including the entity's own credit risk) when measuring the fair value of a liability.
  • Failing to document and disclose the entity's policy for the timing of recognising transfers between hierarchy levels.
  • Applying a valuation technique inconsistently period to period without disclosing and justifying any change as a change in estimate.

CFO checklist

  • Confirm, for every fair value measurement, which hierarchy level it falls into based on the lowest-level significant input, not the majority of inputs used.
  • Maintain documented valuation methodology and assumptions for each material Level 2 or Level 3 measurement, refreshed at every measurement date.
  • Prepare the Level 3 reconciliation and sensitivity disclosures for all material Level 3 measurements before the audit file is closed.
  • Engage suitably qualified (and, for material items, independent) valuers for significant non-financial asset fair value measurements.
  • Assess and document highest and best use for non-financial assets where it could plausibly differ from current use.
  • Reassess whether market conditions (including FX and interest rate movements) have shifted any valuation between hierarchy levels since the last measurement date.

FAQs

q
We have a quoted investment on the Nigerian Exchange (NGX) but trading volume is very thin — is this still Level 1?
a
Only if the market remains 'active' as defined (transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis); if trading has become so infrequent or thin that the quoted price no longer represents an orderly, current transaction, the quoted price may need adjustment or supplementing with a valuation technique, which would move the measurement to Level 2 or Level 3 depending on the inputs used.
q
Do we need an independent valuer for every fair value measurement?
a
IFRS 13 itself does not mandate an independent valuer, but for material measurements, using a suitably qualified independent valuer strengthens the evidential basis and is often expected by auditors and, in Nigeria, is increasingly relevant given the FRCN's developing valuation regulatory framework.
q
How does naira volatility affect a fair value measurement?
a
Where the valuation input (e.g. a comparable transaction, a commodity price, or a discount rate) is itself sensitive to foreign exchange movements, naira volatility can be a significant driver of period-on-period fair value change, and the valuation technique and inputs used should transparently reflect how FX risk was incorporated, since this is directly relevant to the required sensitivity disclosures.

Nigeria application notes

Regulatory overlay

IFRS 13 applies in full to Nigerian public interest entities under the FRCN Act 2011 mandate. [S3] From 1 January 2026, valuations feeding into IFRS 13 fair value measurements for financial reporting purposes should also have regard to the FRCN's Valuation Regulations for Financial Reporting, which set out a regulatory framework for valuers providing such services in Nigeria; the Regulations were at exposure-draft stage when reviewed for this file and their final, in-force status should be confirmed. [S4]

Tax interaction (Nigeria)

A fair value gain or loss recognised under IFRS 13 (via the Standard requiring the fair value measurement, such as IAS 40 or IFRS 9) does not itself create a current tax liability; tax is generally triggered on realisation (for example, on disposal of an asset), at which point capital gains tax — harmonised with the companies income tax rate at 30% for companies under the Nigeria Tax Act 2025 — or ordinary income tax rules apply to the gain, depending on the asset and the taxpayer's circumstances. [S_TAX1][S_TAX2] Unrealised fair value movements should not be assumed to have an equivalent current tax effect without confirming the specific treatment against current NRS practice. Nigerian rates, thresholds, exemptions, incentives and filing rules referenced in this file (including CIT, VAT, withholding tax categories and rates, and the small-company threshold) should be independently verified against the Nigeria Tax Act 2025, the Nigeria Tax Administration Act 2025, the Deduction of Tax at Source (Withholding) Regulations, and current NRS practice in force at the reporting or filing date, since thresholds, rates and reliefs are subject to periodic revision and to sector- or entity-specific qualifying conditions. This file does not constitute legal or tax advice. [S_TAX1][S_TAX2]

FX considerations

For Nigerian entities holding assets whose value is benchmarked against foreign-currency transactions or inputs (prime real estate, imported plant, or foreign-currency-linked contracts), the fair value measurement should reflect a defensible translation of that market evidence using an appropriate, disclosed exchange rate basis (commonly the NFEM official rate) at the measurement date; failing to disclose the FX basis used can obscure how much of a period's fair value movement is genuine asset revaluation versus currency translation. [S6]

SME practical note

Nigerian SMEs applying the fair value model (for investment property, or where required for specific financial instruments) often lack access to frequent, credible market comparables; Outliers recommends building a documented valuation file each period — comparable transactions considered, adjustments made, and the resulting hierarchy level — rather than relying on an undocumented management estimate, since this is precisely the evidence auditors and, increasingly, the FRCN framework will expect to see.

Common Nigerian pitfalls

  • Classifying a Nigerian real estate valuation as Level 2 when the valuer has in fact applied significant unadjusted or judgement-heavy inputs that should place it at Level 3.
  • Not disclosing the exchange rate basis used to translate foreign-currency-referenced valuation evidence into naira.
  • Assuming a fair value gain creates an immediate tax liability, when the tax event is more commonly the realisation (disposal) of the asset, subject to current CGT/CIT rules.
  • Relying on a single outdated comparable transaction as the sole valuation input without considering more recent market evidence or FRCN valuer-qualification requirements once in force.

FRC pronouncements

The relevant FRCN instrument for fair value valuation evidence is the Valuation Regulations for Financial Reporting referenced above; no separate FRCN pronouncement specific to IFRS 13's measurement or disclosure requirements themselves has been identified. [S4]

Worked examples

Level 1 versus Level 3 classification of listed and unlisted equity investments

A company holds two equity investments measured at fair value through profit or loss: (1) 100,000 shares in a company actively traded on the Nigerian Exchange (NGX) at a quoted closing price of ₦45 per share; and (2) a 10% stake in an unlisted company, valued using a discounted cash flow model with a significant unobservable discount rate assumption, at ₦35,000,000.

Facts

Workings

Listed shares: quoted price in an active market for an identical instrument the entity can access — Level 1.

Unlisted stake: no active market; valuation relies on a significant unobservable input (the discount rate) — the entire measurement is classified as Level 3, even though other inputs (e.g. projected cash flows drawn from management's own forecasts) may also be used.

Journal entries

Recognise the fair value gain on the listed equity investment for the period (illustrative; assumes an opening carrying amount of ₦4,200,000).

AccountDr (₦)Cr (₦)
Investment in listed equity securities300,000
Fair value gain on financial assets (profit or loss)300,000

Highest and best use for a non-financial asset

A company owns a plot of land currently used as a staff car park, with a carrying value under the IAS 16 revaluation model. Market evidence shows the land, located in a rapidly commercialising area of Lagos, would be more valuably used for retail development, a use that is physically possible, legally permissible (commercial zoning is available), and financially feasible. The land's fair value as a car park is ₦300,000,000; its fair value under the retail-development highest and best use is ₦520,000,000.

Facts

Workings

IFRS 13 requires fair value of a non-financial asset to reflect its highest and best use from a market participant perspective, not the entity's own current use, provided the alternative use is physically possible, legally permissible and financially feasible.

Since retail development meets all three tests based on the market evidence available, the land is measured at ₦520,000,000, not the ₦300,000,000 current-use value.

Revaluation increase: 520,000,000 - 300,000,000 = 220,000,000 (illustrative, assuming the prior carrying amount equalled the current-use fair value of 300,000,000 and no prior revaluation decrease was recognised in profit or loss for this asset).

Journal entries

Recognise the revaluation increase on land, measured at fair value based on its highest and best use as a market participant would assess it.

AccountDr (₦)Cr (₦)
Land (property, plant and equipment)220,000,000
Revaluation surplus (other comprehensive income / equity)220,000,000

Sources & citations

  1. [S1]IFRS 13 Fair Value Measurement — IFRS Foundationaccessed 2026-07-18
  2. [S2]IFRS 13 — Fair Value Measurement (standard summary) — IAS Plus, Deloitteaccessed 2026-07-18
  3. [S3]IFRS - Use of IFRS Standards by jurisdiction: Nigeria — IFRS Foundationaccessed 2026-07-18
  4. [S4]Call for Comments: Exposure Draft on Valuation Regulations for Financial Reporting, 2024 — Financial Reporting Council of Nigeriaaccessed 2026-07-18
  5. [S5]Global Accounting Advisory: Insights into IFRS 13 – Fair Value Measurement — Grant Thornton Internationalaccessed 2026-07-18
  6. [S6]Exchange Rates (NFEM, official) — Central Bank of Nigeriaaccessed 2026-07-18
  7. [S_TAX1]The Nigerian Tax Reform Acts — PwC Nigeriaaccessed 2026-07-18
  8. [S_TAX2]Nigeria's 2025 Tax Reform Acts Explained: Key Changes — Baker Tilly Nigeriaaccessed 2026-07-18
Last reviewed 2026-07-18 · Reviewer: Rafiu Olawuyi, FCA (Author / Technical Reviewer)