The Use of Fair Value in IFRS

The implementation of International Financial Reporting Standards (IFRS), particularly in the European Union, has led to frequent comments that IFRS are “fair value based standards” and that the IASB is moving inexorably towards full fair value accounting. This article examines the extent to which IFRS do, in fact, require the use of fair values for the measurement of assets and liabilities. It explains the definition of fair value in IFRS, the evolution of that definition and the need for further clarifications and guidance with respect to the application of the definition. It then identifies the four main uses of fair value in IFRS. Three of these uses reflect what should have happened under many national standards. The fourth use is, in practice, restricted to very few assets and liabilities. The article concluded with suggestions about the possible areas in which the IASB might extend the use of fair values.