Most Singapore SME directors have heard of fair value, but few realise it is governed by its own dedicated accounting standard. FRS 113 Fair Value Measurement does not tell a company when to measure something at fair value; that job belongs to other standards such as FRS 40 (investment property), FRS 109 (financial instruments) and FRS 103 (business combinations). What FRS 113 does is set out, in a single place, how that fair value figure must be worked out, what inputs are acceptable, and what has to be disclosed in the notes to the financial statements.
For a director signing off annual accounts, this matters more than it looks. A company that revalues an investment property, marks a bond portfolio to market, or allocates a purchase price on an acquisition is almost certainly relying on FRS 113 mechanics, even if nobody in the finance team has read the standard by name. Auditors will ask for the valuation basis, the inputs used, and whether those inputs are observable in an active market or built on management’s own assumptions. Get the classification wrong and the audit opinion, and sometimes the tax position, can be affected.
This article sets out what FRS 113 actually requires, the three-level fair value hierarchy every finance team should be able to explain on request, where the standard bites hardest for Singapore private companies, and the practical disclosure and governance steps a corporate secretary or finance lead should build into the annual reporting cycle.
What FRS 113 Covers (and What It Does Not)
FRS 113 Fair Value Measurement is the Singapore equivalent of IFRS 13 and applies to financial periods beginning on or after 1 January 2013. It was introduced to consolidate fair value guidance that had previously been scattered across individual standards into one consistent framework. Under FRS 113, fair value 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.
Three points in that definition do a lot of work:
- It is an exit price, not the price a company paid to acquire the asset or the amount it would cost to replace it.
- It is a market-based measurement, not an entity-specific one. What matters is what a hypothetical market participant would pay, not what the asset is worth to the specific company holding it.
- It assumes an orderly transaction, meaning a forced sale or distressed liquidation price is not fair value.
FRS 113 itself does not create new fair value requirements. A company only measures something at fair value because another standard tells it to: FRS 40 for investment property held under the fair value model, FRS 109 for financial instruments at fair value through profit or loss, FRS 102 for share-based payment, or FRS 103 for identifiable assets and liabilities acquired in a business combination. Readers who want the recognition and tax mechanics for investment property or financial instruments specifically should see our companion pieces on FRS 40 Investment Property and FRS 109 Financial Instruments. This article focuses on the measurement mechanics that sit underneath all of them.
The Three-Level Fair Value Hierarchy
The centrepiece of FRS 113 is a hierarchy that ranks the quality of the inputs used to arrive at a fair value figure. The hierarchy exists so that users of financial statements, and auditors, can immediately tell how reliable a given fair value number is likely to be.
| Level | Input Type | Typical Example | Reliability |
|---|---|---|---|
| Level 1 | Quoted prices in active markets for identical assets or liabilities | Listed equity shares, quoted government bonds | Highest; no judgement required |
| Level 2 | Observable inputs other than quoted prices, directly or indirectly | Interest rate curves, comparable transaction prices for similar (not identical) assets, quoted prices in inactive markets | Moderate; some judgement in adjusting observable data |
| Level 3 | Unobservable inputs based on the entity’s own assumptions | Discounted cash flow valuations of an unlisted investment property, private company shareholdings, intangible assets on acquisition | Lowest; heaviest disclosure and audit scrutiny |
For most Singapore private companies, Level 3 is where the trouble lives. A privately held investment property valued using discounted cash flows or the income capitalisation method is a textbook Level 3 measurement, as is the fair value of intangible assets identified in a purchase price allocation, or an unlisted equity stake held for strategic purposes. Because there is no observable market price to anchor the number, FRS 113 requires considerably more disclosure, and auditors will typically ask for the valuer’s report, the discount rate used, and a sensitivity analysis showing how the figure would move if key assumptions changed.
Highest and Best Use for Non-Financial Assets
For non-financial assets such as investment property, FRS 113 introduces the concept of “highest and best use”: the fair value must reflect the use that would maximise the asset’s value to market participants, which is not necessarily its current use by the company. A shophouse currently used as a warehouse but zoned and suitable for retail conversion, for example, may need to be fair-valued on the basis of its retail potential rather than its current warehouse use, if that would be the highest and best use assumed by a market participant. This is a common area where valuations prepared without FRS 113 in mind understate the fair value figure a company should actually be recognising.
Where This Bites Singapore SMEs in Practice
Few small companies apply FRS 113 across the board, but a surprising number trigger it without realising. Common scenarios include:
1. Investment Property Under the Fair Value Model
A company that elects the fair value model for investment property under FRS 40 must apply FRS 113’s measurement and disclosure requirements every year, not just at acquisition. This means an annual (or at least periodic, defensible) revaluation, disclosure of the valuation technique, and classification of the property within the fair value hierarchy, almost always Level 3 for Singapore properties without an active liquid market for identical assets.
2. Unquoted Equity Investments
Under FRS 109, equity investments that are not held for trading are generally measured at fair value, either through profit or loss or through other comprehensive income depending on the election made. For a private company holding shares in another unlisted SME, arriving at a defensible fair value figure without an active market is one of the more contentious areas auditors will push back on, and cost is not an automatic proxy for fair value under the current standard.
3. Business Combinations
Whenever a Singapore company acquires another business (rather than simply buying shares as a passive investment), FRS 103 requires the acquirer to recognise the identifiable assets acquired and liabilities assumed at fair value on the acquisition date. This purchase price allocation exercise routinely throws up intangible assets, customer relationships, brand names, or order backlogs, that must be fair valued using FRS 113 techniques, frequently at Level 3. Directors are often surprised at how much of the purchase price ends up allocated to intangibles rather than sitting as goodwill.
4. Share-Based Payment
Where a company grants share options or other equity-settled awards to employees, the grant-date fair value of those instruments must be measured and expensed over the vesting period. Option-pricing models such as Black-Scholes rely on unobservable inputs (expected volatility for an unlisted company being the obvious one), placing most private company share-based payment valuations at Level 3.
Valuation Techniques FRS 113 Recognises
FRS 113 does not prescribe a single valuation method. Instead it recognises three broad families of technique and requires that the one used be applied consistently and maximise the use of observable inputs:
- Market approach: uses prices and other relevant information from market transactions involving identical or comparable assets.
- Cost approach: reflects the amount currently required to replace the service capacity of an asset (current replacement cost).
- Income approach: converts future cash flows or income/expense amounts to a single discounted present value, the method most commonly used for investment property and unquoted equity in the Singapore SME context.
Whichever technique is used, the standard requires the valuation to be revisited period to period, not simply rolled forward from the prior year’s figure without fresh consideration of whether market conditions or entity-specific assumptions have changed.
Disclosure Requirements Directors Should Expect
FRS 113’s disclosure requirements are extensive by design, because the standard’s underlying philosophy is that users of the accounts should be able to judge for themselves how reliable a fair value figure is. At a minimum, a Singapore company applying fair value measurement to a material balance should expect its financial statements to disclose:
- The fair value hierarchy level (1, 2 or 3) into which each fair-valued item falls;
- The valuation technique(s) and key unobservable inputs used for Level 3 items;
- A reconciliation of movements in Level 3 balances during the year;
- A sensitivity analysis showing the effect of reasonably possible changes in unobservable inputs, for material Level 3 balances;
- Any transfers between hierarchy levels during the period, and the reason for the transfer.
Companies preparing unaudited compilation financial statements should not assume this disclosure burden disappears simply because there is no statutory audit. Directors remain responsible for financial statements that comply with the prescribed accounting standards under section 201 of the Companies Act 1967, and our guide on section 201 obligations sets out what that responsibility actually covers. Companies relying on the small company audit exemption should also see our note on audit exemption under section 205C, since exemption from audit is not exemption from applying the accounting standards correctly.
Practical Governance Steps for the Annual Reporting Cycle
For companies with any fair-valued balances, a few practical steps make the year-end close materially smoother:
- Identify fair-valued balances early. Do not wait until the audit fieldwork to work out which balances are on the balance sheet at fair value rather than cost. Investment property under the fair value model, unquoted equity investments, and any intangibles from a past acquisition are the usual suspects.
- Commission independent valuations in good time. Level 3 valuations, particularly for investment property, should be obtained from a suitably qualified independent valuer well before year end, not rushed through in the final weeks of the audit.
- Document the inputs and assumptions. Keep a working paper recording the discount rate, capitalisation rate, or option-pricing inputs used, and why. This becomes the basis of the sensitivity disclosure and materially speeds up audit queries.
- Review hierarchy classification every year. A balance that was Level 2 last year (say, because a comparable transaction existed) may become Level 3 this year if that market disappears. The classification is not a one-off decision.
- Coordinate with the corporate secretary on the statutory filing. Fair value movements often flow through other comprehensive income or revaluation reserves that need to be correctly reflected in the annual return and, where applicable, XBRL financial statements filed with ACRA. Our XBRL filing guide covers the mechanics of getting these figures into the correct ACRA taxonomy elements.
Companies preparing for their first statutory audit after crossing the small company thresholds should also read our guide on preparing for a first statutory audit, since fair value balances are consistently among the first areas an incoming auditor will scrutinise.
Frequently Overlooked Interactions
A few interactions between FRS 113 and other standards catch companies out more often than the headline fair value rules themselves:
| Interaction | What Goes Wrong |
|---|---|
| FRS 113 and impairment testing | Companies sometimes confuse fair value less costs of disposal (used in impairment testing under FRS 36) with the fair value defined in FRS 113. The two concepts are related but not identical, and impairment reviews should apply FRS 113’s measurement guidance where fair value is the relevant basis. See our FRS 36 impairment guide for the broader testing framework. |
| FRS 113 and tax | Unrealised fair value gains recognised for accounting purposes are not automatically taxable. Whether a fair value gain or loss is taxable, or a specific tax election applies (as is the case for certain FRS 109 financial instruments and FRS 40 investment property held for trading), needs to be checked against the prevailing IRAS guidance on taxable and non-taxable income for the specific asset class rather than assumed from the accounting entry alone. |
| FRS 113 and the audit exemption | Small companies that qualify for audit exemption still need directors to be satisfied the accounts are true and fair, which includes fair value figures. A director who cannot explain the hierarchy level or valuation basis of a material balance has not discharged that responsibility simply because no external auditor was engaged. |
Conclusion: Get the Valuation Basis Right Before It Becomes a Problem
FRS 113 rarely makes headlines the way a new tax scheme or grant does, but it quietly underpins some of the most scrutinised numbers on a Singapore SME’s balance sheet: investment property values, unquoted equity stakes, and the intangibles recognised on an acquisition. Getting the hierarchy classification, valuation technique, and disclosure right is not just a technical accounting exercise; it affects audit timelines, lender confidence, and in some cases the tax position of the company.
If your company holds investment property at fair value, has made an acquisition in the past two years, or is preparing for its first statutory audit and is unsure how its fair value balances should be classified and disclosed, the team at Raffles Corporate Services can help you work through the accounting standard requirements alongside the corporate secretarial and tax filings that depend on them. Get in touch with us to review your annual reporting position before year end.
The Editorial Team, Raffles Corporate Services