Fair Value Assessment: Where It Goes Wrong
The failures on Fair Value Assessment repeat, which means they are avoidable if you know what to watch. The questions below are the ones raised most often in practice; the full scope of the service is on the Fair Value Assessment page.
What happens if our fair value estimate turns out to be materially wrong in hindsight?
A fair value estimate that later proves inaccurate is not automatically a reporting failure — Ind AS 113 and SA 540 both recognise that fair value, particularly for Level 3 items, inherently involves estimation uncertainty, and subsequent events (a later transaction at a different price, a market shift) do not necessarily mean the original estimate was unreasonable at the time it was made. What matters to auditors, regulators (including NFRA for applicable entities), and courts is whether the estimate was made on a reasonable basis, using appropriate methodology, with assumptions that were defensible given the information available at the measurement date. This is precisely why thorough documentation of the basis for every assumption matters as much as the number itself.
In practice: We retain the full working paper file, not just the final report, specifically so that if a fair value position is challenged years later — in a tax assessment, a shareholder dispute, or a regulatory review — the basis for the original judgement can be reconstructed and defended.
Can the same valuation model be used for both Ind AS 113 fair value and a Rule 11UA tax valuation in the same period?
The underlying financial model — projections, discount rate derivation, comparable data — can often be shared as a starting point, since both typically use DCF-based approaches. However, the two reports must be prepared, framed, and disclosed separately: the objective (market participant exit price versus prescribed tax rule fair market value), the applicable methodology constraints (the tax valuation rules — Rule 11UA of the Income-tax Rules, 1962, now consolidated into Rule 57 of the Income-tax Rules, 2026 from tax year 2026-27 — prescribe specific permitted methods; Ind AS 113 requires the approach that maximises observable inputs), and the disclosure format differ. We prepare them as two distinct deliverables even when the underlying model is substantially shared, to avoid any suggestion that a tax-driven valuation was repurposed as an accounting fair value opinion without independent consideration.
In practice: Where both are needed in the same period — for example, a fundraise that also triggers an Ind AS 109 fair value note on the newly issued instrument — we coordinate the two engagements so the assumptions are consistent (where consistency is appropriate) without conflating the two distinct statutory purposes.
What is 'unit of account' and why does it matter for fair value measurement?
The unit of account is the level at which an asset or liability is aggregated or disaggregated for recognition purposes under the relevant accounting standard — and it determines what, exactly, is being fair valued. For example, a block of shares held as a strategic investment may be fair valued per-share (using the quoted price, with no blockage discount permitted for a Level 1 quoted instrument under Ind AS 113) rather than as a controlling block with a control premium, because the unit of account for the holding is typically the individual financial instrument, not the aggregate holding. Getting the unit of account wrong changes the valuation approach and can materially change the concluded value.
In practice: The 'no blockage discount for Level 1 instruments' rule catches out management teams who intuitively want to apply an illiquidity discount to a large quoted shareholding — Ind AS 113 explicitly prohibits this for Level 1 measurements regardless of the size of the holding relative to trading volume.
Is a fair value assessment needed for related-party transactions?
Where a related-party transaction involves an asset or liability that is otherwise required to be fair valued under an applicable Ind AS (for example, a related-party asset sale recognised as a business combination, or a related-party financial instrument classified at FVTPL), a fair value assessment is required on the same basis as for any other counterparty — the related-party relationship does not change the fair value measurement objective, though it does trigger additional disclosure requirements under Ind AS 24 (Related Party Disclosures) and heightened auditor scrutiny given the inherent risk of bias in related-party pricing.
In practice: We apply a higher documentation standard on related-party fair value work specifically because auditors and regulators (including SEBI, for listed entities) scrutinise related-party valuations more closely than arm's-length third-party transactions.
Can a fair value assessment be challenged by tax authorities even though it is for accounting purposes?
Directly, an Ind AS 113 fair value report is not the governing document for a tax assessment — the Assessing Officer applies the Income-tax law's own valuation rules (Rule 11UA of the Income-tax Rules, 1962 for matters governed by the 1961 Act, and Rule 57 of the Income-tax Rules, 2026 under the Income-tax Act, 2025 from tax year 2026-27). Indirectly, however, a fair value that appears in audited financial statements can be referenced by tax authorities as corroborating (or contradicting) evidence in an assessment, particularly around related-party pricing or business restructuring. Consistency between the fair value reported in financial statements and any tax valuation for the same underlying asset, where both exist, reduces the risk of the discrepancy itself becoming a point of enquiry.
In practice: We are careful to explain material differences between an Ind AS 113 conclusion and a contemporaneous Rule 11UA conclusion for the same asset in our engagement notes — a large unexplained gap between the two, even though methodologically justifiable, invites questions we would rather pre-empt than react to.
What is the typical turnaround time for a Fair Value Assessment?
A single-asset assessment with complete data — for example, one investment property disclosure or one FVTPL financial instrument — is generally quicker than a full Purchase Price Allocation for a business combination, involving multiple intangible assets and a more extensive data set. Timelines depend on the scope and the data, so confirm the expected timeline at engagement. The most significant driver of timeline variance is the completeness and timeliness of data provided by management — incomplete projection data or unavailable comparable transaction data is the most common cause of delay.
In practice: We recommend starting the engagement well before the statutory audit fieldwork is scheduled to begin, so there is time for the audit team's own review and any resulting revision cycle before the reporting deadline.
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.