![]() Instead individual standards indicate preferences for certain inputs and measures of fair value over others, but this guidance is not consistent among all IFRSs. IFRSs currently does not have a single hierarchy that applies to all fair value measures. Unobservable inputs should also consider the risk premium a market participant (buyer) would demand to assume the inherent uncertainty in the unobservable input. Therefore, unobservable inputs should be adjusted for entity information that is inconsistent with market expectations. However, the fair value measurement objective remains the same. Level 3 inputs are unobservable inputs, for example, inputs derived through extrapolation or interpolation that cannot be corroborated by observable data.Level 2 inputs are observable inputs other than quoted prices for identical assets or liabilities in active markets at the measurement date.Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets the reporting entity has the ability to access at the measurement date.The revised three-level hierarchy is summarised as follows: The hierarchy prioritises the inputs to valuation techniques used to measure fair value based on their observable or unobservable nature. The draft fair value measurement statement indicates that valuation techniques used to measure fair value shall maximise the use of observable inputs and minimize the use of unobservable inputs. As a consequence, other Board members noted that the current definition will require measurement based on a hypothetical market that, for some types of assets and liabilities, cannot be calibrated with reality and in most cases will result in day 1 gains or losses, which constituents are uncomfortable with. In addition, the revised definition is based on an exit price notion that does not consider prices that exist other than the exit price. However, some Board members expressed concern about the change to a 'price' rather than 'amount'. Based on that, the IASB agreed that the revised definition is consistent with the measurement objective. In the staff's view, the FASB's revised definition of fair value is substantively similar to the one tentatively approved by the IASB in December 2005. ![]() The Board concurred with the staff that the above principles form the foundation of the fair value measurement project. As such, the fair value measurement should consider the location and the condition of the asset or liability at its measurement date. A fair value measurement should consider the utility of the asset or liability being measured.A fair value measurement should reflect market views of the attributes of the asset or liability being measured and should not include views of the reporting entity that differ from market expectations.The definition of fair value and its measurement objective should be consistent for all fair value measurements required by IFRS.The objective of a fair value measurement is to determine the price that would be received for an asset or paid to transfer a liability in a transaction between market participants at the measurement date.The following principles were put to the Board as those forming the foundation of the fair value measurement project: Principles of the fair value measurement project
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