Fair Value Assessment: Who Needs It and Who Does Not
Whether Fair Value Assessment applies to a given business is the first thing worth settling, and it is where most of the early questions land. The questions below are the ones raised most often in practice; the full scope of the service is on the Fair Value Assessment page.
Which items on our balance sheet actually need a fair value assessment?
It depends entirely on which other Ind AS standards apply to your specific balance sheet items. Common triggers: investment property (Ind AS 40) requires fair value disclosure even under the cost model; financial assets/liabilities classified as FVTPL or FVOCI (Ind AS 109) require fair value at every reporting date; acquired assets and liabilities in a business combination (Ind AS 103); goodwill and CGU impairment testing where fair value less costs of disposal is used (Ind AS 36); share-based payments (Ind AS 102); biological assets (Ind AS 41); and investment in subsidiaries/associates held at fair value under certain consolidation exemptions.
In practice: We run a scoping session at the start of every engagement specifically to map your balance sheet against the applicable standards — this alone often surfaces items management did not realise required a fair value note.
What is the fair value hierarchy, and why does the Level classification matter so much?
Level 1 uses quoted prices in active markets for identical items — the most objective category. Level 2 uses observable inputs other than quoted prices — for example, prices for similar assets, or model inputs derived from observable market data. Level 3 uses unobservable inputs — DCF models, adjusted comparable multiples, and option pricing models typically fall here. The classification determines the extent of disclosure required: Level 3 items require disclosure of the valuation technique, significant unobservable inputs, and a sensitivity analysis to reasonably possible alternative assumptions — a materially higher disclosure burden than Level 1 or 2.
In practice: Misclassifying a Level 3 measurement as Level 2 to avoid the sensitivity disclosure is a red flag auditors are specifically trained to look for. We classify conservatively and document the basis explicitly.
Who is qualified to perform a Fair Value Assessment under Ind AS 113?
Ind AS 113 itself does not mandate a specific professional qualification for the valuer — it is a measurement standard, not a licensing regime. In practice, statutory auditors expect the work to be performed or reviewed by a professionally qualified valuer — typically a Chartered Accountant with valuation expertise, or in some cases an IBBI-Registered Valuer, particularly for complex business valuations feeding into a PPA. The auditor evaluates the competence, capability, and objectivity of the valuer under SA 500 and SA 620 (using the work of a management's expert / auditor's expert) — so the valuer's credentials and independence matter even though not formally mandated by the accounting standard.
In practice: We ensure every fair value report we issue includes an explicit statement of the valuer's qualification and independence — this is the first thing the statutory audit engagement team checks before relying on the report.
How often does a fair value measurement need to be updated?
It depends on the classification of the asset or liability. Items measured at fair value through profit or loss (FVTPL) or fair value through OCI (FVOCI) under Ind AS 109 require re-measurement at every reporting date, including interim periods if the company reports quarterly. Investment property under the fair value model (Ind AS 40) similarly requires updating at every reporting date. Impairment testing under Ind AS 36 is triggered at least annually for goodwill and indefinite-life intangibles, and whenever there is an indicator of impairment for other assets. ESOP fair value at grant date, by contrast, is a one-time measurement not subsequently revised for share price movements.
In practice: We set clients up with a recurring engagement calendar aligned to their reporting cycle for items requiring periodic re-measurement — this avoids the scramble of commissioning an urgent valuation in the final week before quarterly or annual results are finalised.
What is a 'market participant' assumption and why does it matter so much in practice?
Ind AS 113 requires the valuer to assume a hypothetical transaction between market participants — independent, knowledgeable, and willing parties who are not related to the reporting entity and who are motivated but not compelled to transact. This deliberately excludes the reporting entity's own specific circumstances, forced-sale conditions, or entity-specific synergies (unless those synergies would also be available to a market participant buyer). It is a conceptual discipline that keeps the valuation objective and comparable across companies, rather than a subjective 'what is this worth to me' calculation.
In practice: This is the single most common source of pushback we give management on their own draft assumptions — founders naturally think in terms of what the asset is worth to their specific business, which is not the question Ind AS 113 asks.
Is a fair value assessment required for a company's own equity instruments (e.g. treasury shares or equity-settled derivatives)?
Fair value measurement generally does not apply to an entity's own equity instruments recognised as equity (for example, ordinary share capital itself is not subsequently fair valued on the balance sheet). However, certain equity-classified instruments with fair-value-relevant features — such as the grant-date fair value of ESOPs under Ind AS 102, or compound financial instruments requiring split accounting under Ind AS 32 — do require a fair value exercise at specific points, even though the resulting amounts may sit in equity rather than being re-measured through profit or loss each period.
In practice: Compound instruments (like CCPS with both a debt and equity component) are a frequent source of confusion — the split between the liability and equity components at initial recognition requires its own fair value exercise distinct from any subsequent FVTPL re-measurement of the liability component alone.
Why should we engage PNPC rather than a generic valuation firm or a template DCF service?
A generic valuation output — a DCF spreadsheet and a one-page conclusion — does not survive an SA 540 audit challenge, does not carry the fair value hierarchy classification and sensitivity disclosure Ind AS 113 requires, and is not backed by a professional who is available to the statutory audit engagement team when questions arise mid-audit. PNPC has been a practising Chartered Accountancy firm since 1986, with valuation specialists who understand both the technical valuation methodology and the audit and regulatory environment the report must survive. We build reports to be defended, not just delivered.
In practice: The clients who come to us after a rejected or heavily challenged fair value report from a lower-cost provider consistently describe the same pattern: a thin report, no working paper file, and no availability from the original valuer once the statutory auditor started asking questions.
Where this sits in the wider engagement
Fair Value Assessment rarely arrives on its own. The statutory basis and the current requirements are set out on the Fair Value Assessment service page, and the related services are grouped under Corporate Finance.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Fair Value Assessment we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.