Fair Value Assessment: The Process, Start to Finish
The mechanics of Fair Value Assessment are what clients ask about once they have decided to proceed. 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 exactly is a Fair Value Assessment under Ind AS 113?
It is an independent determination of the exit price of an asset or liability — the price that would be received to sell the asset, or paid to transfer the liability, in an orderly transaction between market participants at the measurement date. Ind AS 113 is a measurement and disclosure standard: it does not itself decide which items must be fair valued (that is determined by other standards like Ind AS 109, Ind AS 40, or Ind AS 103), but once fair value is required, Ind AS 113 governs exactly how it must be measured, classified in the hierarchy, and disclosed.
In practice: Fair value under Ind AS 113 is a market participant perspective, not an entity-specific one — this distinction changes the valuation approach materially in many engagements.
How is Ind AS 113 different from IFRS 13?
Ind AS 113 is the Indian Accounting Standard, converged with IFRS 13 (Fair Value Measurement) as issued by the IASB. The core principles, the three-level fair value hierarchy, and the disclosure requirements are substantially aligned. Minor carve-outs and transitional provisions exist in the Ind AS version, as with most Ind AS standards converged from IFRS. Where an entity also prepares IFRS financial statements (for example for an overseas parent or a listing abroad), IFRS 13 governs those accounts — the valuation work itself is usually identical, but the disclosure format differs slightly.
In practice: Where an Indian subsidiary has a UAE or international parent, one valuation model can support both the Ind AS 113 note for the Indian statutory accounts and the IFRS 13 note for group reporting — avoiding duplicate engagements.
How is a Fair Value Assessment different from a Rule 11UA valuation for tax purposes?
Rule 11UA of the Income-tax Rules, 1962 governed the fair market value of unquoted shares for specific tax purposes — primarily Section 56(2)(viib) historically (this 'angel tax' provision was made inapplicable to all classes of investors, resident and non-resident alike, by the Finance (No. 2) Act, 2024, with effect from 1 April 2025, i.e. assessment year 2025-26 onwards) and Section 56(2)(x) for the recipient side, which continues to apply. From tax year 2026-27, under the Income-tax Act, 2025, Rule 11UA and its companion valuation rules are consolidated into Rule 57 of the Income-tax Rules, 2026, which carries forward substantially the same core approach. These rules prescribe specific methods, principally a formula-based net asset value approach for unquoted equity shares, rather than leaving the choice open. Ind AS 113 fair value is a broader financial-reporting concept governed by accounting standards, not tax rules, and applies to a much wider range of assets and liabilities, recurring at every relevant reporting date rather than at a single transaction point. The two can use similar underlying models but serve entirely different statutory purposes and cannot substitute for one another in a filing.
In practice: A Rule 11UA valuation report cannot simply be reused as if it satisfies the Ind AS 113 disclosure requirement for the same period — the objective, market-participant perspective, and disclosure requirements differ.
What is Purchase Price Allocation (PPA) and how does it relate to fair value?
Purchase Price Allocation is the process, required under Ind AS 103 (Business Combinations), of allocating the total consideration paid in an acquisition to the fair value of each identifiable asset acquired and liability assumed — including intangible assets not previously recognised on the target's own balance sheet, such as customer relationships, brand, technology, and non-compete agreements. Goodwill is the residual: consideration paid minus the fair value of identifiable net assets acquired. Every asset and liability in the allocation must be fair valued under Ind AS 113 principles, making PPA one of the most valuation-intensive exercises in financial reporting.
In practice: PPA engagements often identify several intangible assets that were not on the target's books pre-acquisition. Each requires its own valuation method — relief-from-royalty for brand, multi-period excess earnings for customer relationships, cost approach for assembled software — this is why PPA timelines run longer than a single-asset fair value assessment.
Do private (unlisted) companies need Ind AS 113 fair value assessments?
It depends on whether the company is required to prepare financial statements under Ind AS. Companies falling within the Ind AS applicability thresholds under the Companies (Indian Accounting Standards) Rules, 2015 (based on net worth and listing status, phased by company category) must comply with Ind AS 113 wherever another applicable Ind AS requires fair value measurement. Companies still reporting under the older Accounting Standards (AS) framework follow the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 — fair value concepts exist there too, though the Ind AS 113 disclosure architecture does not apply in the same form. Many unlisted companies also voluntarily commission fair value assessments to support investor reporting, ESOP expense recognition, or lender covenant compliance even where not strictly mandated.
In practice: Confirm your Ind AS applicability threshold with your statutory auditor first — it is easy to assume Ind AS applies when, on review, the company is still under the AS framework (or vice versa).
How is the discount rate (WACC) determined for a DCF-based fair value?
The Weighted Average Cost of Capital blends the cost of equity (typically via the Capital Asset Pricing Model — risk-free rate plus beta-adjusted equity risk premium, with a size or specific-risk premium added for smaller or private entities) and the after-tax cost of debt, weighted by the target capital structure. For private companies, beta is usually derived by un-levering and re-levering comparable listed company betas to the subject company's own capital structure. Every input — risk-free rate source, equity risk premium basis, comparable set for beta — must be documented and defensible, since the discount rate is typically the single most scrutinised assumption in any DCF-based fair value.
In practice: A half-percentage-point change in WACC can move a DCF valuation by a meaningful percentage on a long-horizon cash flow — this is exactly why the sensitivity analysis disclosure exists. We always show the auditor and management the valuation's sensitivity to a reasonable WACC range, not just a single point estimate.
How is ESOP fair value at grant date determined under Ind AS 102?
Ind AS 102 requires the fair value of the equity-settled share-based payment to be measured at grant date using an option pricing model — most commonly Black-Scholes-Merton for straightforward options, or a binomial/lattice model where features like early exercise behaviour or market conditions need to be captured. Key inputs are the exercise price, current share price (or estimated fair value of the underlying share for unlisted companies), expected volatility, expected life/term of the option, risk-free rate, and expected dividend yield. This grant-date fair value is expensed over the vesting period and is not subsequently re-measured for changes in share price — a key difference from other fair value items that are re-measured every period.
In practice: Volatility is the input founders find hardest to estimate for an unlisted company. A common approach is a blend of comparable listed company historical volatility, adjusted for the subject company's specific risk profile, with the basis documented explicitly since volatility is a judgemental input.
What is a Key Audit Matter (KAM) and why do fair value assessments often become one?
A Key Audit Matter, reported under SA 701, is an area the statutory auditor determines to be of most significance in the audit of the current period's financial statements — typically because it involves significant management judgement, a high degree of estimation uncertainty, or is individually material to the financial statements. Fair value measurements involving unobservable (Level 3) inputs are frequently designated as a KAM precisely because they combine materiality with significant judgement — the auditor's report will then describe how the matter was addressed in the audit, including reference to independent expert valuations relied upon.
In practice: When a fair value item is flagged as a likely KAM, we recommend engaging the valuer earlier in the audit cycle — not in the final two weeks. A KAM invites more detailed auditor procedures, and a rushed valuation under audit-deadline pressure is where errors and inconsistencies creep in.
How does SA 540 affect how our statutory auditor treats our fair value report?
SA 540 (Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures) requires the auditor to independently evaluate the reasonableness of fair value estimates and related disclosures — not simply accept a management-commissioned valuation report at face value. The auditor will assess the valuer's competence, capability, and objectivity (per SA 500/SA 620), test the significant assumptions and data used, and may develop a point estimate or range of their own to compare against management's figure. A well-documented, methodologically sound report with clear assumption support materially reduces audit friction; a thin report invites the auditor's own independent recalculation.
In practice: We build every model with the expectation that the auditor's own valuation specialist (many mid-tier and Big 4 firms have an internal valuations desk) will attempt to reproduce our numbers independently. A report that survives that reproduction test with minimal variance is the standard we hold ourselves to.
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.