What does the concept of ‘fair value’ refer to in IFRS?

The concept of ‘fair value’ in IFRS is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This definition emphasizes the notion of an arm's length transaction, where both the buyer and seller are knowledgeable about the asset, and neither is under any compulsion to act.

Option C highlights this principle effectively by indicating that fair value pertains to the price in an orderly transaction, which aligns with the concept of willing buyer and willing seller in the market context. This approach ensures that the valuation reflects current market conditions and the real economic circumstances surrounding the transaction, rather than historical costs or subjective estimates.

In contrast, the other options do not capture the comprehensive definition of fair value under IFRS or imply different measurement bases. For example, stating that it is the price of an asset as stated in financial statements focuses on recorded values rather than market realities, while the market price for similar assets regardless of transaction conditions overlooks the nuances of individual transactions and market participant perspectives. Lastly, the expected future cash flows from an asset represent a valuation approach but do not conform to the market-based view inherent in the fair value definition as specified in IFRS.