BC55 IFRS 13 states that a fair value measurement is a market‑based measurement, not an entity‑specific measurement. Therefore, a fair value measurement uses the assumptions that market participants would use when pricing the asset or liability.

BC56 The previous definition of fair value in IFRSs referred to ‘knowledgeable, willing parties in an arm’s length transaction’. The IASB concluded that the previous definition expressed the same notion as the definition of fair value in IFRS 13, but that the previous definition was less clear. Thus, IFRS 13 defines market participants as buyers and sellers in the principal (or most advantageous) market for the asset or liability who are independent of each other (ie they are not related parties), knowledgeable about the asset or liability, and able and willing to enter into a transaction for the asset or liability.

Independence

BC57 IFRS 13 states that market participants are independent of each other (ie they are not related parties). That is consistent with the proposal in the exposure draft. Given that proposal, some respondents noted that in some jurisdictions entities often have common ownership (eg state‑owned enterprises or entities with cross ownership) and questioned whether transactions observed in those jurisdictions would be permitted as an input into a fair value measurement. The boards decided to clarify that the price in a related party transaction may be used as an input into a fair value measurement if the entity has evidence that the transaction was entered into at market terms. The boards concluded that this is consistent with IAS 24 Related Party Disclosures.

Knowledge