SFRS(I) 13 does not decide when fair value is used — other standards do that. Instead, it defines what fair value is and sets out a single framework for how to measure it and what to disclose about it. Before this standard, "fair value" was defined in slightly different ways across different standards; SFRS(I) 13 brought a single, consistent definition centred on an exit price and a fair value hierarchy that ranks the inputs used. It is the Singapore equivalent of IFRS 13 under IFRS, and is in substance IFRS 13 as applied in Singapore.
Objective and scope
The objective is to define fair value, set out a single framework for measuring it, and require disclosures about fair value measurements. The standard applies when another SFRS(I) requires or permits fair value measurements or disclosures (with some exceptions, such as share-based payment within SFRS(I) 2 and leasing within SFRS(I) 16). So SFRS(I) 13 provides the "how"; each individual standard sets the "when".
The definition of fair value
Fair value is 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. Several elements are important: it is an exit price (to sell, not to buy); it is a market-based measurement (based on the assumptions market participants would use, not entity-specific intentions); it assumes an orderly transaction in the principal market (or, absent one, the most advantageous market); and, for a non-financial asset, it is based on the asset's highest and best use by market participants (which may differ from the entity's current use).
Valuation techniques
An entity uses valuation techniques appropriate in the circumstances and for which sufficient data are available, maximising the use of relevant observable inputs and minimising unobservable inputs. Three approaches are recognised: the market approach (using prices from market transactions in identical or comparable items); the cost approach (current replacement cost); and the income approach (converting future amounts, such as cash flows, to a single current discounted amount).
The fair value hierarchy
To increase consistency and comparability, SFRS(I) 13 establishes a fair value hierarchy that categorises the inputs to valuation techniques into three levels, giving the highest priority to observable inputs and the lowest to unobservable inputs:
Level 1 inputs — quoted prices (unadjusted) in active markets for identical assets or liabilities the entity can access at the measurement date. These provide the most reliable evidence and are used without adjustment.
Level 2 inputs — inputs other than Level 1 quoted prices that are observable, either directly or indirectly (for example, quoted prices for similar assets, or observable interest rates and yield curves).
Level 3 inputs — unobservable inputs, used to the extent relevant observable inputs are not available (for example, an entity's own data and assumptions about what market participants would use).
A measurement is categorised in its entirety in the level of the lowest level input that is significant to the whole measurement — and this drives the disclosure requirements, which are most extensive for Level 3.
A worked example
A Singapore company holds three assets measured at fair value:
| Asset | How it is valued | Hierarchy level |
|---|---|---|
| Portfolio of listed shares | Unadjusted quoted price in an active market | Level 1 |
| Interest rate swap | Valued using observable inputs (yield curves, market rates) | Level 2 |
| Unlisted equity investment | Discounted cash flow using the entity's own cash flow and growth assumptions | Level 3 |
The listed shares are Level 1 — the unadjusted quoted price is used. The interest rate swap is Level 2 — valued using observable market inputs even though the instrument itself is not quoted. The unlisted equity investment is Level 3 — the significant inputs (future cash flow and growth assumptions) are unobservable. The company discloses the hierarchy level of each, and provides the more detailed disclosures — including a reconciliation of opening and closing balances and information about the key unobservable inputs — for the Level 3 investment.
Disclosure
SFRS(I) 13 requires disclosures that help users assess the valuation techniques and inputs used, and — for recurring Level 3 measurements — the effect of those measurements on profit or loss or OCI. Disclosures include the hierarchy level, transfers between levels, the techniques and inputs used, and, for Level 3, a reconciliation of opening and closing balances and quantitative information about the significant unobservable inputs.
How SFRS(I) 13 relates to IFRS
SFRS(I) 13 is identical to IFRS 13 under IFRS — the same exit-price definition, the same market-participant and highest-and-best-use concepts, the same three valuation approaches, and the same three-level hierarchy and disclosures. An entity familiar with IFRS 13 will find SFRS(I) 13 to be the same standard.
Common pitfalls
Recurring issues include using an entry price (acquisition cost) rather than an exit price; adjusting a Level 1 quoted price when it should be used unadjusted; measuring a non-financial asset based on the entity's current use rather than its highest and best use; over-relying on unobservable inputs when observable inputs are available; and categorising a measurement in the wrong level of the hierarchy or omitting the Level 3 disclosures.
Why this is cleaner on a unified system
Fair value measurement and its disclosures — categorising measurements by hierarchy level, tracking transfers between levels, and reconciling Level 3 balances — depend on connected, consistent data about the assets and liabilities measured at fair value and the inputs used. When the records of those items and the general ledger sit in one connected system, determining and disclosing fair values by hierarchy level, and reconciling them to the recognised amounts, is more straightforward than assembling the information from separate tools.
This article is a detailed educational summary of SFRS(I) 13 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of SFRS(I) 13 as issued by the Singapore Accounting Standards Council before relying on it, and consult a qualified professional accountant for application to your specific circumstances.