Describe the fair value hierarchy in line with ifrs

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Reference no: EM132601734

"If loans are valued at historical cost and market values are rising, the loans are likely to be sold if this is the only way of realising profit, even if the market undervalues them. The banks' managers take a profit and get paid accordingly, although shareholders would be better off if the loans were kept."

REQUIRED:

Question (i) Define the term 'fair value' and describe the fair value hierarchy in line with IFRS 13 'Fair Value Measurement'.

Question (ii) Explain the problem for agency theory arising from the use of historical cost in recognising and subsequent measuring of financial instruments.

Reference no: EM132601734

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