He is up against New Zealand captain Richie McCaw, All Blacks fly-half Dan Carter and France No 10 Frederic Michalak.
Saracens star Farrell made the breakthrough into the England team this year, performing superbly in the Six Nations.
The 21-year-old is likely to be up against Carter when England face New Zealand at Twickenham on Saturday.
The winner of the award will be announced at the Rugby World Cup 2015 Pool Allocation Draw in London on December 3, along with the IRB Coach of the Year and IRB Team of the Year Awards.
McCaw is the most capped All Black in history having played 115 Tests for his country and after lifting the World Cup in 2011 New Zealand have remained unbeaten under his captaincy in 2012.
He has won the award three times before, in 2006, 2007 and 2010 whilst Carter won it in 2005.
Michalak returned to the France team on the summer tour of Argentina after an absence of two years.
He was the architect of four consecutive victories against the Pumas (twice), Australia and Samoa, and before that he played superbly for the Sharks in Super 15.
France captain Thierry Dusautoir won the award last year.
IRB Chairman Bernard Lapasset said: "It has been a compelling year of international Rugby with the introduction of the expanded Tours and Tests calendar, Argentina's successful inauguration into The Rugby Championship and the race for rankings points to secure a favourable RWC 2015 Pool draw.
"As ever, the competition has been fierce and the panel had a tough time deliberating the shortlist from a number of stand-out candidates.
"All four players on the shortlist thoroughly deserve their place after standout performances during the year and consistency in the tough environment that is Test Rugby."
The judging panel consists of Will Greenwood, Gavin Hastings, Raphael Ibanez, Francois Pienaar, Agustin Pichot, Scott Quinnell, Tana Umaga and Paul Wallace.
Gilbert has released a new line of rugby cleats. The Gilbert Virtuo 8S is part of the exciting new product. Check it out.
The entire All Blacks apparel line has been updated for 2013/14. Check out the New Zealand All Blacks polo.
The Nike Tiempo is a solid rugby cleat and one of few styles still made from full-grain natural leather.
The Gilbert Blitz 8S rugby cleat is a great cleat at a great price of $69.99. Get a new pair of cleats today.
A cool looking all black rugby cleat with the high performance adidas is known for. Get in the Gear!
Wear the crest of the British and Irish Lions on your t-shirt. A great look for the summer.
The All Blacks Performance t-shirt is black with hints of blue from the training jersey. Very Cool.
The New Zealand All Blacks training jersey for 2013/14. Get in the Gear!
The USA Rugby Pro Alternate rugby jersey is perfect for any fan of the Eagles. Get yours to wear during the summer Test matches.
The NEW All Blacks 2013/14 jersey has arrived at World Rugby Shop. Dare to wear the colors of the All Blacks.