Unless otherwise defined, the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction (in a free market situation).
(CONJUNCTIVUS POTENTIALIS). – Transactions in the context of a compulsory sale or distressed sale are excluded. – If quoted prices are available for a financial instrument on an active market, the price determined there is to be regarded as the fair value. A quotation on an active market requires published prices on an exchange, from dealers, brokers, industry groups, pricing services or regulatory authorities, which can be obtained easily and regularly (regularly and steadily). It is also assumed that these prices reflect market conditions: an exchange as between independent third parties. In this sense, the fair value is to be understood as market value and is also used in this way in the course of IAS (39.9). – Admittedly, this raises a variety of problems, which are widely discussed in the literature, depending on which asset is involved – for example, real estate, capital stock, intangible assets, etc. – and how it is to be measured: Real estate, capital stock, intangible assets, financial instruments. – In illiquid, dysfunctional markets, as in the wake of the subprime crisis, the upward trend in market values in good years often reverses rapidly. In this case, it leads to waves of downward acceleration, following the pattern of falling prices, rising impairments, necessary distress sales and further falling prices. – In spring 2011, an attempt was made with IFRS 13 to achieve a uniform definition and calculation of FV that also includes the US provisions. Importantly, in light of the lessons learned from the financial crisis that followed the subprime crisis, IFRS 13 specifies the calculation of FV even when markets are not liquid and FV must be calculated using models. – See contagion effects, audit, measurability, valuation, presentation, credible, full fair value standard, inventory value, combination effect, lover value, mark-to-model approach, market, active, market value, procyclicality, rule-based, transparency, asset, embedded, fair value, fair value accounting. – Cf. BaFin Annual Report 2005, p. 56 f. (on the fair value option in IAS 39), BaFin Annual Report 2006, p. 57 (valuation issues in the liabilities of an insurance company).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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