Fair Value is actually a big issue as it is difficult to understand and usually happens, the students struggled to identify and understand What is Fair Value? That leads to so many misconceptions and to incorrect accounting measurements.

Missing Clear Remarks on Fair Value was also leading to manipulate the accounts and mislead the users of Financial Statement easily.

Why it is important to understand the Fair Value?

If you are an Accountant or An Auditor, You may know that Now most of the Accounting Standards talk about Fair Value and Requires to Measure the Items at Fair Value. For Example,
IAS 16 - Property, Plant and Equipment - Revaluation Model is on Fair Value, IAS 38 - Intangible Asset, IAS 40 - Investment Property, IAS 41 - Agriculture, IFRS 9 - Financial Instruments, IFRS 5 - Non-Current Assets held-for-sale, IAS 36 - Impairment, and Many other standards.

What International Accounting Standard Board (IASB) did in respect of understanding of Fair Value?

International Accounting Standard Board (IASB) was aware of the issues arising due to an Unclear Explanation about Fair Value that was leading to conflicts and misconceptions.
Thus, International Accounting Standard Board (IASB) decided to create a separate Accounting Standard to tell the students and the business world that, What is Fair Value and How to Measure the Fair Value.

Therefore, International Accounting Standard Board (IASB) and Financial Accounting Standard Board (FASB) had issued  IFRS 13 - Fair Value Measurement  that merely talks about Fair Value and provides Deep Knowledge of Fair Value.

Fair Value

Fair Value is the value that is determined by the market and agreed by the willing buyer and seller.
In Simple word,

" Fair Value is the Price (market price) that would be received OR expected to be received by sell an asset."
OR, "A Price that is Paid to Transfer a Liability in Orderly Transaction between the Market Participants at the measurement date.


To Know more about Fair Value, Read the article on Accounting Standard  " IFRS 13 - Fair Value Measurement."