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 and measurement framework, centred on an exit price and a fair value hierarchy that ranks the inputs used. It is the Singapore equivalent of IFRS 13 and Ind AS 113 in India, and is in substance IFRS 13 as applied in Singapore.
Objective and scope
The objective is to define fair value, set out in a single framework for measuring fair value, 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 transactions within SFRS(I) 2 and leasing transactions within SFRS(I) 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value or value in use). So SFRS(I) 13 provides the "how"; the "when" is set by each individual standard that calls for fair value.
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 of this definition are important:
It is an exit price — the price to sell an asset or transfer a liability, not the price to buy or acquire it.
It is a market-based measurement, not an entity-specific one — it is based on the assumptions that market participants would use, not the entity's own intentions.
It assumes an orderly transaction (not a forced sale or distressed transaction) in the principal market for the asset or liability (the market with the greatest volume and level of activity) or, in its absence, the most advantageous market.
For a non-financial asset, fair value is measured based on its highest and best use by market participants — the use that would maximise the value of the asset (which may differ from the entity's current use).
Valuation techniques
An entity uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Three widely used valuation approaches are recognised: the market approach (using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities); the cost approach (the amount that would be required currently to replace the service capacity of an asset, i.e. current replacement cost); and the income approach (converting future amounts, such as cash flows or income and expenses, to a single current discounted amount). Valuation techniques are applied consistently, with changes only where they result in a measurement that is equally or more representative of fair value.
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 are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A quoted market price in an active market provides the most reliable evidence of fair value and is used without adjustment whenever available.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly — for example, quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, and observable inputs such as interest rates and yield curves.
Level 3 inputs are unobservable inputs for the asset or liability, used to the extent that relevant observable inputs are not available — for example, inputs derived from the entity's own data and assumptions about what market participants would use.
The fair value measurement is categorised in its entirety in the level of the lowest level input that is significant to the entire measurement. This hierarchy also drives the disclosure requirements, which are more extensive for Level 3 measurements.
Disclosure
SFRS(I) 13 requires disclosures that help users assess the valuation techniques and inputs used to develop fair value measurements, and — for recurring fair value measurements using significant unobservable inputs (Level 3) — the effect of those measurements on profit or loss or other comprehensive income. Disclosures include the level of the fair value hierarchy into which measurements are categorised, transfers between levels, the valuation techniques and inputs used, and, for Level 3, a reconciliation of opening and closing balances and quantitative information about the significant unobservable inputs.
A brief illustration
A Singapore company holds three assets measured at fair value. The first is a portfolio of listed shares with quoted prices in an active market — a Level 1 measurement, using the unadjusted quoted price. The second is an interest rate swap valued using observable market inputs such as yield curves — a Level 2 measurement. The third is an unlisted equity investment valued using a discounted cash flow model that relies on the company's own assumptions about future cash flows and growth — a Level 3 measurement, because the significant inputs are unobservable. The company discloses the hierarchy level of each, and provides the more detailed Level 3 disclosures (including a reconciliation and information about the key unobservable inputs) for the unlisted investment.
How SFRS(I) 13 relates to IFRS and Ind AS
SFRS(I) 13 is identical to IFRS 13 under IFRS, and therefore very closely aligned with Ind AS 113 in India — the same exit-price definition of fair value, the same market-participant and highest-and-best-use concepts, the same three valuation approaches, and the same three-level fair value hierarchy and disclosures. Because both Singapore and India converge to the IFRS text, fair value is measured on materially the same basis across the three frameworks. India's older AS framework has no single equivalent fair-value-measurement standard, so SFRS(I) 13 aligns with Ind AS 113 (both converged IFRS 13) rather than with anything in the AS framework.
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 by market participants; over-relying on unobservable inputs when observable inputs are available; and categorising a measurement in the wrong level of the hierarchy (it should reflect the lowest significant input) or omitting the more detailed 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.