We prepare valuations for financial reporting under IFRS and UK GAAP, defining the scope against the relevant standard and documenting assumptions in the way auditors expect.
When is this valuation required?
- A business combination requires the purchase price to be allocated to identifiable assets and goodwill.
- Goodwill or other assets need to be tested for impairment.
- Unlisted investments or financial instruments must be measured at fair value.
- Share-based payments must be measured for the accounts.
- Auditors have asked for independent support for a value used in the accounts.
Who instructs us?
- Finance directors, CFOs and group finance teams
- Private equity and investment firms
- Accountants preparing statutory accounts
What exactly is valued?
Depending on the requirement: identifiable intangible assets and goodwill, cash-generating units, investments in unlisted companies, equity instruments and share-based awards, or other items the applicable standard requires to be measured at a particular value.
How is value assessed?
We start by identifying the applicable framework and standard, because each defines the value it requires. Fair value under IFRS 13 is an exit price from the perspective of market participants; value in use under IAS 36 reflects the entity's own expected cash flows from continuing use. UK GAAP under FRS 102 has its own requirements. Applying the right definition is as important as the valuation technique.
Techniques are then chosen to suit the item: income approaches for intangibles and cash-generating units, market approaches where reliable comparable data exists, and option pricing or scenario models for equity instruments with complex terms.
How the approaches are usually weighed
Typical
- IncomeCash flows for intangibles and cash-generating unitsUsual starting point
- MarketComparable data, where reliableCross-check
- OptionOption pricing for equity with complex termsWhere relevant
Keeping the terms distinct
Several value concepts sound similar but mean different things. Using the wrong one is a common source of audit queries.
- Market value: a general valuation concept of the price between willing parties in an open market.
- Fair value: in general usage, a fair price; under a specific accounting standard, the measure that standard defines.
- Fair value under IFRS 13: the price to sell an asset or transfer a liability in an orderly transaction between market participants.
- Value in use: the present value of cash flows expected from an asset or cash-generating unit in its current use.
- Recoverable amount: the higher of fair value less costs of disposal and value in use.
- Transaction value: the price actually agreed in a particular deal.
What factors influence the result?
- Applicable standard
- IFRS or FRS 102 requirements and the definition of value they impose.
- Unit of account
- Whether the item is valued individually or as part of a group of assets.
- Forecasts
- Consistency with budgets approved by management and with market evidence.
- Discount rates
- Rates appropriate to the risk of the specific cash flows.
- Audit expectations
- Documentation that allows the auditor to understand and test the work.
What information is required?
- The applicable framework and the accounting question to be answered
- Transaction documents for business combinations
- Approved budgets and forecasts
- Details of investments, instruments or awards to be measured
- Prior-year valuations and audit correspondence
We send a tailored information request once the scope is agreed.
What report will you receive?
Reports state the standard applied, the definition of value, the scope, the method and key assumptions, with supporting analysis designed to be reviewed by the auditor. We are available to respond to audit questions on our work.
See types of business valuation reports for how the scope of each type differs.
Timing and cost
How long will it take?
Reporting deadlines are fixed, so early instruction matters. We agree a timetable that leaves time for audit review before the accounts are signed.
How much does it cost?
Fees depend on the number of items, the complexity of the instruments or intangibles and the audit requirements. A written proposal sets out the scope and fee.
How our fees are set →Frequently asked questions
Is fair value the same as market value?
Not always. Fair value under an accounting standard has a precise definition that can differ from market value in a general valuation. We use each term in its correct context.
Do you work with our auditors?
We prepare our work to be reviewed by auditors and can respond to their questions. We remain independent of both the company and the audit firm.
Can you value investments in unlisted companies?
Yes, including private equity portfolio holdings, using methods consistent with the relevant fair value guidance.
Do you prepare impairment tests?
Yes. We can prepare or review value in use and fair value less costs of disposal calculations for goodwill and other assets.
Is every intangible recognised in a business combination?
Recognition depends on the framework and on whether the intangible meets the criteria. The rules differ between IFRS and FRS 102, and we follow the applicable framework.
