The IASB actually adopted its standards from some of its U.S. counterparts when it comes to addressing some of the problems to do with valuation. A so-called fair value hierarchy has been established for the valuation of assets and liabilities:
Level 1: Fair values is based on quoted market prices given to identical assets and liabilities, assuming that the parties involved have immediate access to the market.
Level 2: Fair value is based on market prices that are similar, i.e. not identical, to the assets and liabilities in question.
Level 3: If it is the case that the values for both level 1 and 2 are unavailable, then the fair value should be estimated using certain valuation techniques.
Companies are required to provide detailed information about how they calculated the fair value. It should be clear which evaluation method and input parameters have been referred to. It is also necessary to provide basic information relating to the valued assets, or liabilities. Additionally, it should also be outlined, via footnotes or an attachment, what effect the valuations based on the level 3 parameters had on the stated profits/losses.