Proceedings

difference is normal and justified by the subjective factor coming from interpretation
of descriptive answers.
1.3. The main requirements of the exposure draft
As we have mentioned before, IASB’s intention is to provide a framework for
measuring fair value and disclosure about fair value. Probably the most important
aspect of the ED is the definition of the fair value (par. 1 ED):
“The amount for which an asset could be exchanged, a liability settled, or an equity
instrument granted could be exchanged, between knowledgeable, willing parties in an
arm’s length transaction”.
In order to appraise the fair value, the entity must identify the reference market and
the market participants. The market to be used is the most advantageous market to
which the entity has access. The most advantageous market is the market that
maximizes the amount that would be received to sell the asset after considering
transaction costs and transport costs, and it is in most of the cases the principal market
of the entity, meaning the market with the greatest volume and level of activity for the
asset.
As for the market participants, even if the entity should not identify them specifically,
it should consider their characteristics and the fact that they must be independent of
each other; knowledgeable, able and willing to enter into a transaction for the asset.
Also very interesting is the assumption on which the pricing of the fair value is based,
namely the highest and the best use. More precisely, when there is no actual
transaction in order to freely observe the price, in order to asses the price that market
participants would use for the asset the entity must assume that the market participant
will use the asset in its highest and best use (HBU) that is physically possible, legally
permissible and financially feasible at the measurement date, and, accordingly will
maximise the value of the asset or the group of assets.
The highest and best use of the asset may be “in use” or “in exchange”. HBU is ‘in
use’ if the asset would provide maximum value to market participants mainly through
its use, on a stand alone base or in combination with other assets. If the highest and
best use of the asset is in use, the fair value of the asset shall be measured using an inuse
valuation premise. HBU is “in exchange” if the asset would provide maximum
value to market participants principally on a stand-alone basis. If the highest and best
use of the asset is in exchange, the fair value of the asset shall be measured using an
in-exchange valuation premise.
A change from the previous rules is set by the ED’s requirement regarding the
treatment of the fair value at initial recognition of the item. According to par. 34 ”if an
IFRS requires or permits an entity to measure an asset or liability initially at fair value
and the transaction price differs from fair value, the entity recognizes the resulting
gain or loss in profit or loss unless the IFRS requires otherwise”.
In order to estimate the price at which an orderly transaction would take place
between market participants, the entity must use valuation techniques. Those
techniques may relate the market approach, income approach or cost approach. The
market approach uses prices and other relevant information generated by market
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