Fair value under IFRS 13 is defined 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 — a "price at exit" concept. It is a market-based measurement, not an entity-specific measurement: the fair value reflects market participants' assumptions, not the entity's own assumptions about how it would use the asset. IFRS 13 applies to all fair value measurements required or permitted by other IFRS standards (financial instruments under IFRS 9, investment property under IAS 40, biological assets under IAS 41, business combination assets under IFRS 3).

IFRS 13 establishes a three-level fair value hierarchy based on the observability of inputs: Level 1 (quoted prices in active markets for identical assets — highest reliability), Level 2 (observable inputs other than Level 1 prices, such as market multiples for comparable companies), and Level 3 (unobservable inputs based on entity's own assumptions — lowest reliability, highest judgment). Most business valuation work (DCF, multiples for unlisted companies) falls within Level 3, requiring full disclosure of valuation techniques and significant inputs.

In a business context, IFRS 13 fair value measurements are most commonly encountered in three situations: Purchase Price Allocation (PPA) for business combinations under IFRS 3, impairment testing of goodwill and assets under IAS 36, and measurement of equity-settled share-based payments under IFRS 2. In each case, the valuation methodology must be documented, the level of the hierarchy identified, and the key assumptions disclosed in the financial statement notes.

At Hectelion, we perform IFRS 13-compliant fair value measurements for PPA, impairment testing and financial instrument valuation in our valuation mandates.