A valuer's guide to fair value under IFRS

• Part 1 of 4 · Measurement

• Part 2 of 4 · Acquisitions

Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date: an exit price. It assumes the principal or most advantageous market, applies highest and best use to non-financial assets, and ranks inputs in a three-level hierarchy, with the most disclosure for Level 3.

The acquirer measures identifiable assets acquired and liabilities assumed at acquisition-date fair value, including intangibles the target never recorded, such as customer relationships, technology and brands. Goodwill is the residual, contingent consideration is measured at fair value, and provisional amounts can be adjusted within a measurement period of up to one year.

• Part 3 of 4 · Impairment

• Part 4 of 4 · Intangibles and property

IAS 36 Impairment of Assets

IAS 38 and IAS 40

An asset or cash-generating unit is impaired when its carrying amount exceeds its recoverable amount, the higher of fair value less costs of disposal and value in use. Goodwill and indefinite-life intangibles are tested at least annually. Value in use is entity-specific and excludes future restructurings and enhancements not yet committed.

IAS 38 treats an intangible as identifiable when it is separable or arises from contractual or legal rights, and allows the revaluation model only where an active market exists, which is rare. IAS 40 lets entities carry investment property at fair value under IFRS 13, or at cost with fair value disclosed.

• Practice point 1 of 4 · Basis of value

• Practice point 2 of 4 · Purchase price allocation

IVS 2025 recognises bases of value set outside IVS, such as fair value under IFRS 13. State the IFRS definition and the measurement date in the report, and keep buyer-specific synergies out of a market participant measure.

In a purchase price allocation, reconcile the internal rate of return, the weighted average cost of capital and the weighted average return on assets. A large gap usually signals a problem with the forecasts, the consideration or the asset returns.

• Practice point 3 of 4 · Impairment

• Practice point 4 of 4 · Audit

Keep the tests apart

Write for the auditor

Value in use uses pre-tax cash flows and a pre-tax discount rate for the asset in its current condition; fair value less costs of disposal follows IFRS 13 and market participant assumptions. Do not mix inputs between the two.

Auditors test Level 3 inputs closely. Document the source of each key assumption, show sensitivity to the discount rate and growth, and explain why you selected or excluded each approach.

✱ Keep learning

Read the official text, then go deeper

This guide is Valuvix’s independent summary of IFRS 13, IFRS 3, IAS 36, IAS 38 and IAS 40. Valuvix is not affiliated with the IFRS Foundation or the International Accounting Standards Board. Rely on the official standards and their bases for conclusions, and compare with our IVS 2025 guide and our VFR Valuation Advisories guide.