IFRS 13 Fair Value Measurement: Key Elements and Insights

IFRS 13 Fair Value Measurement – Framework, Valuation Techniques, and Disclosure Requirements

1️⃣ Introduction: Understanding IFRS 13 Fair Value Measurement

IFRS 13 Fair Value Measurement provides a single, consistent framework for measuring fair value across all IFRS standards.
In Singapore, where companies value investment properties, financial instruments, and intangible assets, IFRS 13 Fair Value Measurement ensures these valuations are transparent, comparable, and grounded in market-based assumptions.
Therefore, financial statements show clearer, more reliable fair-value information.

2️⃣ Purpose and Scope

IFRS 13 does not tell companies when to apply fair value. Instead, it explains how to measure fair value when another IFRS requires it (such as IFRS 9, IFRS 16, IAS 40, and IAS 41).
The standard aims to create consistency in:

Fair-value definition
Valuation techniques
Inputs and assumptions
Disclosure requirements

As a result, users receive fair-value information that reflects real market conditions.

3️⃣ What Is Fair Value?

Under IFRS 13 Fair Value Measurement, 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.”

Key elements include:

Exit price (not entry price)
Market participant perspective
Orderly transaction
Current market conditions

In addition, fair value reflects assumptions that knowledgeable, willing buyers and sellers would use.

4️⃣ The Fair Value Hierarchy (Level 1, Level 2, Level 3)

IFRS 13 classifies inputs into three levels:

Level 1 (Highest Priority)

Quoted prices in active markets for identical assets or liabilities.
Examples: listed shares, REIT prices.

Level 2

Observable inputs for similar items or indirectly derived values.
Examples:

Corporate bond yield curves
Interest-rate swaps
Valuations based on market comparables

Level 3 (Lowest Priority)

Unobservable inputs, often requiring significant judgement.
Examples:

Private-equity valuations
Investment property valuations
Valuation of unquoted shares

Therefore, companies must prioritise Level 1 inputs whenever available.

5️⃣ Valuation Techniques Under IFRS 13

IFRS 13 Fair Value Measurement allows three main valuation techniques:

(a) Market Approach

Uses prices and information from market transactions.
Example: Comparable property transactions.

(b) Cost Approach

Based on replacement cost of the asset.
Example: Replacement cost of specialised machinery.

(c) Income Approach

Discounts future cash flows to present value.
Example: DCF valuation for investment properties.

As a result, companies choose the method that best reflects market assumptions.

IFRS 7 Financial Instruments: Disclosures

6️⃣ Highest and Best Use (HBU)

For non-financial assets, fair value reflects the asset’s highest and best use, even if this differs from current use.
Considerations include:

Physical possibility
Legal permissibility
Financial feasibility

Therefore, land currently used for storage may have a higher fair value if rezoning allows commercial use.

7️⃣ Fair Value of Liabilities

To measure liabilities at fair value, IFRS 13 requires companies to consider:

Non-performance risk
Credit risk
Market assumptions of a transfer to another party

In addition, entities must assume the liability continues, not extinguished.

8️⃣ Disclosure Requirements

IFRS 13 requires detailed disclosures, especially for Level 3 valuations:

Valuation techniques used
Significant assumptions and inputs
Sensitivity analysis for key inputs
Reconciliation of Level 3 movements
Fair-value hierarchy table (Level 1/2/3)

In Singapore, ACRA FRSP frequently reviews Level 3 disclosures, particularly for investment properties and unquoted equity valuations.

9️⃣ Example: IFRS 13 in Practice

Scenario:
uSafe Accounting Pte. Ltd. holds:

A Level 1 listed equity investment
A Level 2 corporate bond
A Level 3 investment property valued using DCF

Under IFRS 13 Fair Value Measurement, uSafe must:

Measure the listed share using quoted market prices
Measure the bond using observable yield curves
Value the property with an income approach and disclose discount rates, growth assumptions, and sensitivity

Consequently, stakeholders understand how fair values were derived and how sensitive they are to changes.

IFRS 9 Financial Instruments

🔟 Common Errors

Using entry prices instead of exit prices
Missing sensitivity analysis for Level 3 inputs
Mixing valuation techniques without justification
Not updating discount rates to current market conditions
Insufficient disclosure of assumptions or fair-value hierarchy

Avoiding these errors improves audit quality and compliance.

11️⃣ Best Practices

To apply IFRS 13 effectively:

✅ Use independent market data whenever possible
✅ Document each valuation technique clearly
✅ Update assumptions regularly
✅ Provide clear Level 3 sensitivity disclosures
✅ Align IFRS 13 disclosures with IFRS 7 and IFRS 9 requirements

In addition, companies should ensure valuation reports are consistent with financial-statement disclosures.

Conclusion

IFRS 13 Fair Value Measurement provides a consistent and market-based approach to valuing assets and liabilities.
Therefore, applying IFRS 13 enhances transparency, improves comparability, and supports high-quality financial reporting for Singapore companies, especially those with financial instruments or investment properties.

Disclaimer: This article is for informational purposes only and does not constitute any professional advice. Feel free to contact us to consult with our professional advisors team for personalized advice and guidance.

Sources: https://www.ifrs.org/issued-standards/list-of-standards/ifrs-13-fair-value-measurement/