Fair value (IFRS 13)

Fair value under IFRS 13 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: an exit price concept. It is a market-based measurement, not an entity-specific measurement, reflecting market participants' assumptions rather than the entity's own assumptions about how it would use the asset. In business valuation, fair value is distinct from "fair market value" (the price between a hypothetical willing buyer and willing seller) and "investment value" (the value to a specific buyer). IFRS 13 applies to all fair value measurements required or permitted by other IFRS standards: financial instruments under IFRS 9, business combination assets under IFRS 3, impairment testing under IAS 36, investment property under IAS 40 and biological assets under IAS 41.

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IFRS 13 establishes a three-level fair value hierarchy based on the observability of inputs: Level 1 (quoted prices in active markets for identical assets, highest reliability), Level 2 (observable inputs other than Level 1 prices, such as market multiples for comparable companies) and Level 3 (unobservable inputs based on the entity's own assumptions, lowest reliability and highest judgment). Most business valuation work (DCF, multiples for unlisted companies) falls within Level 3, requiring full disclosure of valuation techniques and significant inputs. Fair value measurements are most commonly encountered in Purchase Price Allocation under IFRS 3, goodwill and asset impairment testing under IAS 36, and equity-settled share-based payments under IFRS 2, with the hierarchy level identified and key assumptions disclosed in the financial statement notes.

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Example: in a PPA following an acquisition, Hectelion determines the fair value of acquired customer relationships at CHF 3.8 million using Level 3 unobservable inputs (projected revenue streams, attrition rates, discount rate). This fair value, validated through a WARA consistency check, is recognised as a separate intangible asset under IFRS 3, replacing a portion of the residual goodwill.

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At Hectelion, we perform IFRS 13-compliant fair value measurements for PPA, impairment testing, financial instrument valuation and litigation purposes in our valuation mandates.