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or restrictions that could affect the conclusion that the property’s
highest and best use continues to be its current use.
to be aware of the conceptual differences between IFRS 13 and IVS
to ensure any values used for financial reporting purposes that are
obtained from appraisals are consistent with the objective of fair
value measurement in accordance with IFRS 13.
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.” 59 This
effectively results in a definition of fair value that reflects an exit
price for the respective property in question. Conceptually, the
definition of fair value under IFRS 13 differs from IVS in that any
transaction advantages or disadvantages that would not be available
to market participants generally should be disregarding when
measuring fair value for financial reporting purposes, whether
revaluing an asset or determining the extent of impairment to be
recognized.
Additionally, the concept of “highest and best use” is given
much greater focus under IFRS 13. Specifically, under the new
requirements, an entity’s current use of an asset is presumed to be
its highest and best use, unless other factors suggest that a different
use of that asset by market participants would maximize its value.
This determination will require considerable judgment on the part
of management and will require an understanding of local market
dynamics, financial feasibility, and the presence of legal limitations
IFRS 13 continues to permit the three generally accepted
approaches to fair value — the market approach, the cost approach
and the income approach. However, the standard puts greater
emphasis on the selection of inputs, requiring the use of observable
inputs over unobservable ones. As such, it is imperative that
management analyze appraisals received in order to conclude that
such fair values are derived based on the amended definition of fair
value. While general concepts and approaches to measuring fair
value under IFRS 13 are consistent with those under the majority of
local generally accepted accounting principles, careful consideration
is required by hotel owners and operators to identify changes
to current fair value practice and related changes in disclosure
requirements.
As the lodging industry enters 2014, certain implementation issues
may arise within hotel organizations across the world. IFRS 13
significantly expands the financial reporting disclosure requirements
for fair value measurements, whether recognized or only disclosed.
The additional reporting requirements will particularly affect any fair
values determined using significant unobservable valuation inputs,
which would warrant categorization within Level 3 for financial
reporting purposes.
With regards to implementation of the new standard, concerns
generally pertain to the accurate consolidation and compilation
of the various data points necessary to comply with the enhanced
disclosure requirements. Specifically, issues can arise as a result
of variations in fair value methodology, key inputs and appropriate
levels of aggregation for identified segments. Those entities with
significant variations in hotel type or geographic footprint, among
other significant considerations, will need to continually evaluate
the appropriateness and effectiveness of structure and extent of
required disclosures.
59. IFRS 13, Appendix A.
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