As a practical expedient, an entity may measure the fair value of certain assets and liabilities using an alternative method that does not rely exclusively on quoted prices. [IFRS 13 79(a)]
This practical expedient is appropriate only when the following criteria are met:
- The entity holds a large number of similar (but not identical) assets or liabilities; and
- Quoted prices from an active market, while available, are not readily accessible for these assets or liabilities individually (i.e. given the large number of similar assets or liabilities held by the entity, it would be difficult to obtain pricing information for each individual asset or liability at the measurement date).
The use of such an alternative method as a practical expedient also is subject to the condition that it results in a price that is representative of fair value. The application of a practical expedient is not appropriate if it would lead to a measurement that is not representative of an exit price at the measurement date. [IFRS 13 79(a), IFRS 13 B7]
The use of an alternative pricing method results in a fair value measurement categorized within a lower level of the fair value hierarchy. An example of an alternative pricing method is matrix pricing. This pricing method involves using a selection of data points, usually quoted prices, or yield curves to calculate prices for separate financial instruments that share characteristics similar to the data points.
Matrix pricing using observable market-based data points will usually result in a Level 2 categorization in the fair value hierarchy.
Note: Under IFRS there is no practical expedient to measure fair value of investments in investment companies at net asset value derived from for example NAV Reports or Financial statements.
Transaction price for similar or identical assets or liabilities (Level 2 adjustments)
An entity considers all of the following in measuring fair value or estimating market risk premiums. [IFRS 13 B44]
- If the evidence indicates that a transaction is not orderly, the entity places little, if any, weight (compared with other indications of fair value) on that transaction price.
- If the evidence indicates that a transaction is orderly, the entity takes into account that transaction price. The amount of weight placed on that transaction price when compared with other indications of fair value will depend on facts and circumstances, such as the volume of the transaction, the comparability of the transaction to the asset or liability being measured, and the proximity of the transaction to the measurement date.
- If the entity does not have sufficient information to conclude whether a transaction is orderly, it takes into account the transaction price. However, that transaction price may not represent fair value; that is, the transaction price is not necessarily the sole or primary basis for measuring fair value or estimating market risk premiums. If the entity does not have sufficient information to conclude whether particular transactions are orderly, it places less weight on those transactions when compared with other transactions that are known to be orderly.
A fair value measurement is not intended to reflect a forced transaction or a distressed sale price. Nevertheless, the presence of distressed sellers in a particular market may influence the price that could be obtained by a non-distressed seller in an orderly transaction. [IFRS 13 B41]