Objective of financial reporting

Less weight for existing shareholders (Stewardship)

Decision-usefulness=>Information on amount, timing and risk of
future cash flows
Qualitativecharacteristics for useful financial
information with primacy for relevance and
economic substance
Balance sheet perspective
Income and expenses defined in terms of changes of assets and
liabilities
Definition
of assets and liabilities in terms of
future economic benefits

p. 2
1. Use FV as aditional information in
disclosures
2. Us FV as a benchmark for valuation
purposes (e.g. impairment test)
3. Use FV at initial measurement when
assets, liabilities, income and expenses
are first recognised in the financial
statements
4. Account for changes in FV of existing
assets and liabilities in subsequent
periodes
1. Disclosure:
IAS 38 Intangible assets
IAS 19 Employee benefits
IAS 40 Investment property
IAS 41 Agriculture
IFRS 7 Financial instruments: Disclosures

2. Benchmark:
IAS 36 Impairment of assets (recoverable amount)
IAS 19 Employee benefits
IAS 17 Leases
IFRS 5 Non-current assets held for sale and discontinued
operations
3. Initial measurement:
IAS 18 Revenue / IAS 12 Contract revenue
IAS 38 Intangible assets
IFRS 2 Share-based payment
IFRS 3 Business combinations

4. Subsequent measurement:
IAS 16 Property, plant and equipment
IAS 39 Financial instruments: Recognition and
measurement
IAS 40 Investment properties
IAS 41 Agriculture
Current value (actuele waarde) =
een waarde die gebaseerd is op actuele
marktprijzen of op gegevens die op
waarderingsdatum geacht kunnen
worden relevant te zijn voor de waarde
(art.1 lid 1 BAW)
Vervangingswaarde, bedrijfswaarde,
marktwaarde (rele waarde) or
opbrengstwaarde (art.1 lid 2 BAW)
 The amount at which an asset could
be exchanged, or a liability settled,
between knowledgeable, willing
parties in an arms length transaction

=> Fair value as a market-related amount

 Defines FV for financial reporting
purposes
Prescribes rules for FV measurement
Refines disclosures on FV measurements
Applicable when other IFRS require FV
 Improve consistency and comparability of
financial statements when using FV
Help preparers, auditors and users in
performing their role
Enhance understanding of users of what FV
represents

p. 9
 Principal or most
Exit advantageous Market
price market participants

Fair Highest or
Unit of
account value best use

Inputs to
FV Market-, income or valuation
hierarchy cost approach techniques
 The price that would be received to
sell an asset or paid to transfer a
liability in an orderly transaction
between market participants at
measurement date

=> Fair value as exit-price

 Market value is the amount obtainable
from the sale, or payable on the acquisition
of a financial instrument in an active
market (IAS 32/5)
1) Based on market transactions and not
on entity-specific data
2) Assumptions that market participants
would use in pricing the asset or
liability at measurement date
3) Hypothetical transaction
FV as opportunity cost
FV as risk benchmark
4) An orderly transaction excludes
forced transactions
p. 13
 Principal or most
Exit advantageous Market
price market participants

Fair Highest or
Unit of
account value best use

Inputs to
FV Market-, income or valuation
hierarchy cost approach techniques
 Particular Asset or Liability Unit of Account

at
The Price Exit Price

in the
Market where market participant
Principal (or Most Advantageous) Market would orderly transact the asset or
liability
between
Independent, knowledgeable,
Market Participants able and willing

at the
Current of alternative use?
Highest and Best Use (for Non-Financial Assets) As a group or on a standalone
basis?
based on
Valuation Techniques Market, Income, Cost Approach

using the
Fair Value Hierarchy Level 1, 2 and 3 Inputs
 Measurement relates to a particular A/L with
specific characteristics, such as
Condition and location
Restrictions on sale or use
Characteristics that market participants value in
price determination should be considered
Unit of account versus Unit of measurement
Unit of measurement: Stand-alone or in group
Depends on the standard for which FV is estimated
IAS 39 (IFRS 9)/ IAS 38/ IAS 40: more often stand-alone
financial instrument or non-current asset
IAS 36/ IFRS 3: often measurement as cash-generating
unit (CGU) or business

p. 16
 Marktet participants are other entities in the exit-
market with whom the entity would transact
Buyers and sellers in the market who are
a. Independent from each other
b. Knowledgeable about the asset or liability
c. Able to enter into the transaction
d. Willing to do so (not forced or compelled)
Are expected to maximise their economic benefit
In estimating FV, the assumptions of market
participants should be used, not those of the
reporting entity

p. 17
1. Transaction costs
Incremental direct costs that arise when a
market transaction materialises
2. Transportation costs
3. Bid and ask
4. Correcting for volume
5. Different markets
6. How to determine context for valuation?
Highest and best use
 Market prices are not adjusted for
transaction costs
Transaction costs are a feature of a
transaction , not of the particular A/L to be
measured
 FV should reflect the economic substance
of the element to be measured and, thus,
should take into account its condition and
location
If location is a feature of the element to be
measured, the price should be adjusted for
transport costs
The costs incurred to transport the asset from its
current location to the reference market
 IAS 39: Use bid price for assets and ask
price for liabilities, but mid-prices are
allowed for offsetting positions
IFRS 13: Use the price within the bid-asked
spread at which marketplace participants
would currently transact
 TheFV of a large position of a A/L with a
quoted market price is measured as
Unit price x Quantity

In
principle no blockage factor (premium or
discount)
 Principal market = market with the largest
volume and level of activity
Most advantageous market = market that
would maximise the amount received/paid ,
after taking into account transaction and
transport costs
Priority for the principal market
In the absence of a principal market, use the
most advantageous market as the reference
market
Market Price Transaction Net
costs amount
A 26 3 23

B 25 1 24

C 25.5 2 23.5
 Valuation premise for non-financial assets
FV is measured by considering the
highest and best use of an asset
Highest and best use is determined from
the perspective of the market participant ,
not of the holder
Will determine whether the asset will be
measured stand-alone or in combination
(as a group) with other A/L
If measurement as a group is indicated,
one assumes that the market participant
possess the complementary A/L
 Company X acquires in a business
combination a piece of land that is destined
to be used as part of a production facility
Nearby pieces of land have been recently
developed for residential apartment
buildings and that potential use is also
allowed for the acquired land
Highest and best use will consider:
Value as factory land (in combination with other
assets)
Value as land for residential development (taking into
account additional costs to make it available for
residential use)
 Assumptions that market participants use
in determining FV
Are the inputs for valuation techniques
Observable inputs (based on market data from
independent sources)
Unobservable inputs (based on assumptions
about assumptions of market participants)

When estimating FV the use of

observable inputs should be maximised
=> Fair value hierarchy depending on
observability of inputs
 Level 1 Mark-to-Market
Quoted prices (unadjusted) in active markets for identical assets and
liabilities that the enitity can access at measurement date

Level 2
Inputs other than qoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly

Level 3 Mark-to-Model
Unobservable inputs for the asset or liability

p. 28
 Level 2 inputs:
Quoted prices for similar elements
Quoted prices for identical or similar elements in
non-active markets
Other directly observable market inputs (such as
interest rates, yield curves, volatilities)
Inputs derived by correlating or extrapolation of
market inputs

Level 3 inputs:
Assumptions of the reporting entity regarding the
assumptions of market participants
Developed using best available information in
given circumstances
Cost / benefit considerations
Often own data from reporting entity
Three possible valuation techniques:
(cfr. Valuing real estate)

1. Market approach
> Determine the value of a house using selling prices of
comparable houses
2. Income approach
> Determine the value of an apartment building using the present
(discounted) value of future rental cash flows
3. Cost approach
> Determine the value of a house using the costs to build a house

p. 30
 Use observable prices and other relevant
information coming from market
transactions for identical or comparable
A/L
Often market multiples derived from a range of reference
points
Range of values Choice requires judgement of qualitative
and quantitative factors which are specific for the valuation
Forexample the use of company multiples
(Price/Sales, Price/EBITDA, Price/
Earnings)
 Valuation techniques that convert future
amounts (such as cash flows or earnings)
in a single present value
Valuation is based on value derived from
market expectations regarding future
amounts
For example present value techniques
using cash flows (or earnings) and option-
pricing models
 Determine the amount that would be needed
at measurement date to replace the service
capacity of the asset (replacement cost)
Amount can not be higher than the costs a
buyer in the market is willing to incur for the
acquisition or construction of a substitute
asset with comparable utility, adjusted for
obsolescence:
Physical deterioration
Functional and technological obsolescence
Economic obsolescence (external)
 Consider availability of data to develop
market inputs when determining the
appropriate valuation technique
Maximise use of relevant observable inputs
and minimise use of unobservable inputs
Combination of valuation approaches is
allowed (e.g. , when valuing a cash
generating unit)
Apply consistently

p. 34
 Measurement is based on the amount paid
to transfer a liability to a market
participant, not on the amount required to
settle the present obligation
Reflects non-performance risk = the risk
that an entity will not fulfil the obligation
Own credit risk (= financial component)
Operating component (especially for non-financial
liabilities)
Include the effect of a change in own
credit standing
= Correction for financial risk
 IFRS 13 improves disclosures on FV
measurements
Disclosure of valuation techniques,
inputs and of information used to
determine inputs
Additional quantitative and
descriptive disclosure is demanded
when Level 3 unobservable inputs are
used
p. 36
 Should assist users in assessing the extent to which
The reporting entity uses FV after initial recognition
FV are based on observable versus unobservable
inputs
FV measurements affect P/L (and OCI)
Disclosures focus on:
Inputs used when estimating FV
Level of FV hierarchy to which FV measurements
belong
Disclosures become more important for
measurements that significantly use Level 3 inputs
Information should enable users to assess sensitivity of
measurements for key inputs
p. 37
Measurements according to Level in the
FV hierarchy
( in 000s) Fair Value at Reporting Date
Description 12/31/XX Level 1 Level 2 Level 3
Trading securities 115 105 10
Available-for-sale securities 75 75
Derivatives 60 25 15 20
Venture capital investments 10 10

Total: 260 205 25 30

 For recurring FV measurements using unobservable inputs (Level
3), reconciliation of opening and closing balances

( in 000s) Level 3 Fair Value Measurements

Derivatives Venture Capital Total
Investments
Beginning balance 14 11 25
Total gains and losses
Included in P/L 11 (3) 8
Included in OCI 4 4
Purchases, issuances and settlements (7) 2 (5)
Transfers in/out Level 3 (2) 0 (2)
Ending balance 20 10 30
Changes in unrealized gains or losses
in P/L relating to assets still held 7 2 9
. Assume that Entity X and Entity Y each enter into a
contractual obligation to pay cash (500) to Entity Z
in five years.
. Entity X has a AA credit rating and can borrow at 6%
. Entity Y has a BBB credit rating and can borrow at
12%.
. Entity X will receive about 374 in exchange for its
promise (the present value of 500 in five years at
6%).
. Entity Y will receive about 284 in exchange for its
promise (the present value of 500 in five years at
12%).
.The fair value of the liability to each entity (i.e., the
proceeds) incorporates that entitys credit
standing.
 Objective of financial reporting
Less weight for existing shareholders (Stewardship)
Decision-usefulness=>Information on amount, timing and risk of
future cash flows
Qualitativecharacteristics for useful financial
information with primacy for relevance and
economic substance
Balance sheet perspective
Income and expenses defined in terms of changes of assets and
liabilities
Definition
of assets and liabilities in terms of
future economic benefits

p. 42
1. Use FV as aditional information in
disclosures
2. Us FV as a benchmark for valuation
purposes (e.g. impairment test)
3. Use FV at initial measurement when
assets, liabilities, income and expenses
are first recognised in the financial
statements
4. Account for changes in FV of existing
assets and liabilities in subsequent
periodes
1. Disclosure:
IAS 38 Intangible assets
IAS 19 Employee benefits
IAS 40 Investment property
IAS 41 Agriculture
IFRS 7 Financial instruments: Disclosures

2. Benchmark:
IAS 36 Impairment of assets (recoverable amount)
IAS 19 Employee benefits
IAS 17 Leases
IFRS 5 Non-current assets held for sale and discontinued
operations
3. Initial measurement:
IAS 18 Revenue / IAS 12 Contract revenue
IAS 38 Intangible assets
IFRS 2 Share-based payment
IFRS 3 Business combinations

4. Subsequent measurement:
IAS 16 Property, plant and equipment
IAS 39 Financial instruments: Recognition and
measurement
IAS 40 Investment properties
IAS 41 Agriculture
Current value (actuele waarde) =
een waarde die gebaseerd is op actuele
marktprijzen of op gegevens die op
waarderingsdatum geacht kunnen
worden relevant te zijn voor de waarde
(art.1 lid 1 BAW)
Vervangingswaarde, bedrijfswaarde,
marktwaarde (rele waarde) or
opbrengstwaarde (art.1 lid 2 BAW)
 The amount at which an asset could
be exchanged, or a liability settled,
between knowledgeable, willing
parties in an arms length transaction

=> Fair value as a market-related amount

 Defines FV for financial reporting
purposes
Prescribes rules for FV measurement
Refines disclosures on FV measurements
Applicable when other IFRS require FV
 Improve consistency and comparability of
financial statements when using FV
Help preparers, auditors and users in
performing their role
Enhance understanding of users of what FV
represents

p. 49
 Principal or most
Exit advantageous Market
price market participants

Fair Highest or
Unit of
account value best use

Inputs to
FV Market-, income or valuation
hierarchy cost approach techniques
 The price that would be received to
sell an asset or paid to transfer a
liability in an orderly transaction
between market participants at
measurement date

=> Fair value as exit-price

 Market value is the amount obtainable
from the sale, or payable on the acquisition
of a financial instrument in an active
market (IAS 32/5)
1) Based on market transactions and not
on entity-specific data
2) Assumptions that market participants
would use in pricing the asset or
liability at measurement date
3) Hypothetical transaction
FV as opportunity cost
FV as risk benchmark
4) An orderly transaction excludes
forced transactions
p. 53
 Principal or most
Exit advantageous Market
price market participants

Fair Highest or
Unit of
account value best use

Inputs to
FV Market-, income or valuation
hierarchy cost approach techniques
 Particular Asset or Liability Unit of Account

at
The Price Exit Price

in the
Market where market participant
Principal (or Most Advantageous) Market would orderly transact the asset or
liability
between
Independent, knowledgeable,
Market Participants able and willing

at the
Current of alternative use?
Highest and Best Use (for Non-Financial Assets) As a group or on a standalone
basis?
based on
Valuation Techniques Market, Income, Cost Approach

using the
Fair Value Hierarchy Level 1, 2 and 3 Inputs
 Measurement relates to a particular A/L with
specific characteristics, such as
Condition and location
Restrictions on sale or use
Characteristics that market participants value in
price determination should be considered
Unit of account versus Unit of measurement
Unit of measurement: Stand-alone or in group
Depends on the standard for which FV is estimated
IAS 39 (IFRS 9)/ IAS 38/ IAS 40: more often stand-alone
financial instrument or non-current asset
IAS 36/ IFRS 3: often measurement as cash-generating
unit (CGU) or business

p. 56
 Marktet participants are other entities in the exit-
market with whom the entity would transact
Buyers and sellers in the market who are
a. Independent from each other
b. Knowledgeable about the asset or liability
c. Able to enter into the transaction
d. Willing to do so (not forced or compelled)
Are expected to maximise their economic benefit
In estimating FV, the assumptions of market
participants should be used, not those of the
reporting entity

p. 57
1. Transaction costs
Incremental direct costs that arise when a
market transaction materialises
2. Transportation costs
3. Bid and ask
4. Correcting for volume
5. Different markets
6. How to determine context for valuation?
Highest and best use
 Market prices are not adjusted for
transaction costs
Transaction costs are a feature of a
transaction , not of the particular A/L to be
measured
 FV should reflect the economic substance
of the element to be measured and, thus,
should take into account its condition and
location
If location is a feature of the element to be
measured, the price should be adjusted for
transport costs
The costs incurred to transport the asset from its
current location to the reference market
 IAS 39: Use bid price for assets and ask
price for liabilities, but mid-prices are
allowed for offsetting positions
IFRS 13: Use the price within the bid-asked
spread at which marketplace participants
would currently transact
 TheFV of a large position of a A/L with a
quoted market price is measured as
Unit price x Quantity

In
principle no blockage factor (premium or
discount)
 Principal market = market with the largest
volume and level of activity
Most advantageous market = market that
would maximise the amount received/paid ,
after taking into account transaction and
transport costs
Priority for the principal market
In the absence of a principal market, use the
most advantageous market as the reference
market
Market Price Transaction Net
costs amount
A 26 3 23

B 25 1 24

C 25.5 2 23.5
 Valuation premise for non-financial assets
FV is measured by considering the
highest and best use of an asset
Highest and best use is determined from
the perspective of the market participant ,
not of the holder
Will determine whether the asset will be
measured stand-alone or in combination
(as a group) with other A/L
If measurement as a group is indicated,
one assumes that the market participant
possess the complementary A/L
 Company X acquires in a business
combination a piece of land that is destined
to be used as part of a production facility
Nearby pieces of land have been recently
developed for residential apartment
buildings and that potential use is also
allowed for the acquired land
Highest and best use will consider:
Value as factory land (in combination with other
assets)
Value as land for residential development (taking into
account additional costs to make it available for
residential use)
 Assumptions that market participants use
in determining FV
Are the inputs for valuation techniques
Observable inputs (based on market data from
independent sources)
Unobservable inputs (based on assumptions
about assumptions of market participants)

When estimating FV the use of

observable inputs should be maximised
=> Fair value hierarchy depending on
observability of inputs
 Level 1 Mark-to-Market
Quoted prices (unadjusted) in active markets for identical assets and
liabilities that the enitity can access at measurement date

Level 2
Inputs other than qoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly

Level 3 Mark-to-Model
Unobservable inputs for the asset or liability

p. 68
 Level 2 inputs:
Quoted prices for similar elements
Quoted prices for identical or similar elements in
non-active markets
Other directly observable market inputs (such as
interest rates, yield curves, volatilities)
Inputs derived by correlating or extrapolation of
market inputs

Level 3 inputs:
Assumptions of the reporting entity regarding the
assumptions of market participants
Developed using best available information in
given circumstances
Cost / benefit considerations
Often own data from reporting entity
Three possible valuation techniques:
(cfr. Valuing real estate)

1. Market approach
> Determine the value of a house using selling prices of
comparable houses
2. Income approach
> Determine the value of an apartment building using the present
(discounted) value of future rental cash flows
3. Cost approach
> Determine the value of a house using the costs to build a house

p. 70
 Use observable prices and other relevant
information coming from market
transactions for identical or comparable
A/L
Often market multiples derived from a range of reference
points
Range of values Choice requires judgement of qualitative
and quantitative factors which are specific for the valuation
Forexample the use of company multiples
(Price/Sales, Price/EBITDA, Price/
Earnings)
 Valuation techniques that convert future
amounts (such as cash flows or earnings)
in a single present value
Valuation is based on value derived from
market expectations regarding future
amounts
For example present value techniques
using cash flows (or earnings) and option-
pricing models
 Determine the amount that would be needed
at measurement date to replace the service
capacity of the asset (replacement cost)
Amount can not be higher than the costs a
buyer in the market is willing to incur for the
acquisition or construction of a substitute
asset with comparable utility, adjusted for
obsolescence:
Physical deterioration
Functional and technological obsolescence
Economic obsolescence (external)
 Consider availability of data to develop
market inputs when determining the
appropriate valuation technique
Maximise use of relevant observable inputs
and minimise use of unobservable inputs
Combination of valuation approaches is
allowed (e.g. , when valuing a cash
generating unit)
Apply consistently

p. 74
 Measurement is based on the amount paid
to transfer a liability to a market
participant, not on the amount required to
settle the present obligation
Reflects non-performance risk = the risk
that an entity will not fulfil the obligation
Own credit risk (= financial component)
Operating component (especially for non-financial
liabilities)
Include the effect of a change in own
credit standing
= Correction for financial risk
 IFRS 13 improves disclosures on FV
measurements
Disclosure of valuation techniques,
inputs and of information used to
determine inputs
Additional quantitative and
descriptive disclosure is demanded
when Level 3 unobservable inputs are
used
p. 76
 Should assist users in assessing the extent to which
The reporting entity uses FV after initial recognition
FV are based on observable versus unobservable
inputs
FV measurements affect P/L (and OCI)
Disclosures focus on:
Inputs used when estimating FV
Level of FV hierarchy to which FV measurements
belong
Disclosures become more important for
measurements that significantly use Level 3 inputs
Information should enable users to assess sensitivity of
measurements for key inputs
p. 77
Measurements according to Level in the
FV hierarchy
( in 000s) Fair Value at Reporting Date
Description 12/31/XX Level 1 Level 2 Level 3
Trading securities 115 105 10
Available-for-sale securities 75 75
Derivatives 60 25 15 20
Venture capital investments 10 10

Total: 260 205 25 30

 For recurring FV measurements using unobservable inputs (Level
3), reconciliation of opening and closing balances

( in 000s) Level 3 Fair Value Measurements

Derivatives Venture Capital Total
Investments
Beginning balance 14 11 25
Total gains and losses
Included in P/L 11 (3) 8
Included in OCI 4 4
Purchases, issuances and settlements (7) 2 (5)
Transfers in/out Level 3 (2) 0 (2)
Ending balance 20 10 30
Changes in unrealized gains or losses
in P/L relating to assets still held 7 2 9
. Assume that Entity X and Entity Y each enter into a
contractual obligation to pay cash (500) to Entity Z
in five years.
. Entity X has a AA credit rating and can borrow at 6%
. Entity Y has a BBB credit rating and can borrow at
12%.
. Entity X will receive about 374 in exchange for its
promise (the present value of 500 in five years at
6%).
. Entity Y will receive about 284 in exchange for its
promise (the present value of 500 in five years at
12%).
.The fair value of the liability to each entity (i.e., the
proceeds) incorporates that entitys credit
standing.