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Ind AS 113 Fair Value Measurement | Virtual Auditor

Quick answer: Ind AS 113 defines fair value as the exit price in an orderly transaction between market participants and establishes the three-level input hierarchy. It governs fair value measurement across Ind AS — financial instruments, investment property, business combinations, impairment — and demands maximum use of observable inputs, with documented models where markets are absent.

Fair value measurement under Ind AS 113. Level 1/2/3 hierarchy, unobservable inputs, financial instruments. IBBI Registered Valuer.

Last reviewed: July 2026 by CA V. Viswanathan (FCA, ACS, CFE, IBBI Registered Valuer)

Fair Value as an Exit Price — the Ind AS 113 Definition

Ind AS 113 is not a standard that tells you when to measure fair value — other standards do that — it tells you how. Its single most important idea is that fair value is an exit price: 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. That is a market-based measurement, not an entity-specific one. What the reporting entity intends to do with the asset, or what it paid for it, is irrelevant; what a hypothetical market participant would pay is everything. This deceptively simple definition drives every downstream judgement — the market, the participants, the assumptions and the technique.

We prepare fair-value measurements for financial instruments, investment property, biological assets, share-based payments, and the assets and liabilities recognised in business combinations — each measured to the same exit-price discipline and documented for the auditor.

The Three-Level Fair-Value Hierarchy

LevelInputsTypical assetsDisclosure burden
Level 1Quoted prices in active markets for identical assetsListed equity, government bondsLowest
Level 2Observable inputs other than quoted prices (yields, multiples of comparables)Most debt, some derivatives, comparable-based equityModerate
Level 3Unobservable inputs; entity's own assumptionsUnlisted equity, complex derivatives, intangiblesHighest — sensitivity analysis required

The hierarchy prioritises observable market data over the entity's own assumptions, and the level is set by the lowest significant input, not the highest. Level 3 measurements attract the heaviest disclosure — a reconciliation of movements, the valuation technique and inputs, and a sensitivity analysis of the significant unobservable inputs — which is where most audit friction on fair value now occurs.

Highest and Best Use, and the Principal Market

For non-financial assets, Ind AS 113 requires measurement at the asset's highest and best use by market participants — a use that is physically possible, legally permissible and financially feasible — even if that differs from the entity's current use. A plot held as a warehouse may have a higher value as a development site, and fair value must reflect that. Equally, the measurement assumes a transaction in the principal market (the market with the greatest volume and activity for the asset), or, absent one, the most advantageous market. Identifying the right market and the right use is not a formality — it can move the number materially, and it is the judgement auditors probe first on property and specialised assets.

Choosing the Valuation Technique

  1. Market approach: prices and other relevant information from market transactions in identical or comparable assets — the first choice where Level 1 or good Level 2 data exists.
  2. Income approach: converts future amounts (cash flows or earnings) to a single discounted present value — used for unlisted businesses, intangibles and income-producing property.
  3. Cost approach: the amount required to replace an asset's service capacity (depreciated replacement cost) — used where the asset is specialised and neither market nor income data is reliable.
  4. Technique consistency: the standard requires techniques to be applied consistently period to period and changed only when the change produces a measurement that is equally or more representative — a change of technique is itself a disclosable event.

Often more than one technique is used, and the results are weighed; the standard requires maximising observable inputs and minimising unobservable ones within whichever technique is chosen.

The Disclosure Pack Your Auditor Needs

A fair-value number without a disclosure trail fails audit. For every recurring and non-recurring measurement we deliver: the hierarchy level and the reason for it; the valuation technique and a description of the inputs; for Level 3, a quantitative sensitivity analysis and a movement reconciliation; the policy for determining transfers between levels; and, for non-financial assets, the highest-and-best-use conclusion. We build this pack alongside the valuation so the auditor receives a self-contained file rather than a number they must reverse-engineer — which shortens the audit and removes the year-end scramble that Level 3 measurements otherwise create.

Fees

ServiceFee (from)
Fair-value measurement — single asset with disclosure pack₹35,000
Unlisted-investment portfolio fair value (per cycle)Scoped by holdings
Level 3 sensitivity analysis and audit support₹40,000
Highest-and-best-use / property fair-value opinion₹50,000

Why Choose Virtual Auditor?

  • Fellow Chartered Accountant (FCA) with 14+ years experience
  • IBBI Registered Valuer (IBBI/RV/03/2019/12333)
  • Certified Fraud Examiner (CFE)
  • Associate Company Secretary (ACS)
  • Offices in Chennai, Bangalore, and Mumbai
  • 100+ complex valuations completed

Our Approach

We combine deep regulatory expertise with AI-powered tools to deliver accurate, defensible, and timely results. Every engagement is led by CA V. Viswanathan, ensuring senior-level attention.

Contact Us

Chennai (HQ): G-131, Ground Floor, Phase 3, Spencer Plaza Mall, Anna Salai, Chennai 600002. Phone: +91 99622 60333.

Bangalore: 7th Floor, Mahalakshmi Chambers, 29, MG Road, Bangalore 560001. Phone: +91 95139 39333.

Mumbai: Workafella, AK Estate, SV Road, Goregaon West, Mumbai 400062. Phone: +91 77000 89597.

Ind AS 113 Fair Value Measurement — Practical Overview

Ind AS 113 (corresponding to IFRS 13) establishes the framework for fair value measurement in Indian financial reporting. It defines fair value 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.

Regulatory and Statutory Framework

The standard prescribes a three-level fair-value hierarchy: Level 1 (quoted prices in active markets for identical assets/liabilities), Level 2 (other observable inputs), and Level 3 (unobservable inputs, requiring entity's own assumptions). Disclosure requirements escalate sharply at Level 3 — sensitivity analyses, alternative reasonable assumptions, and reconciliation of opening to closing balances are required.

Process and Documentation Requirements

The end-to-end process typically involves: (a) initial fact-finding and document collection — incorporation documents, financial statements, board resolutions, and any prior filings on the matter; (b) regulatory analysis — identification of applicable provisions, exemptions, and procedural prerequisites; (c) drafting of the substantive deliverable — whether a report, application, certificate, or representation; (d) obtaining necessary internal approvals from the company's board or shareholders; (e) submission to the regulatory authority with supporting evidence; (f) follow-up on queries and rectifications; (g) post-completion compliance maintenance and record-keeping. Our Ind AS 113 valuation engagements cover: financial instruments classified at FVTPL or FVOCI; investment property; biological assets; share-based payment arrangements (Ind AS 102 cross-reference); and contingent consideration in business combinations (Ind AS 103 cross-reference).

Common Pitfalls and How We Avoid Them

From our litigation and assessment experience, the most frequent issues that escalate into adverse outcomes are: (a) inadequate documentation supporting the technical position taken; (b) inconsistency between disclosures across different statutory filings (income tax, ROC, GST); (c) failure to obtain timely contemporaneous evidence (board minutes, valuer reports, contracts); (d) reliance on form over substance — the Indian regulatory regime increasingly looks through form to economic substance; (e) missed limitation periods for filings, replies, or appeals. Our engagement methodology builds in checks against each of these failure modes from kick-off.

Why CA V. Viswanathan and Virtual Auditor

The combination of FCA, ACS, CFE, and IBBI Registered Valuer credentials under one practice — IBBI/RV/03/2019/12333 — is rare, and is precisely the breadth needed for engagements that span direct tax, indirect tax, corporate law, FEMA, and valuation simultaneously. Our practice has been operating since 2012 with offices in Chennai, Bangalore, and Mumbai, and serves clients across India through secure document-room workflows, named partner ownership, and weekly status updates. Engagements are scoped on fixed-fee terms wherever the work permits, with full transparency on inclusions and exclusions.

Engagement Process and Next Step

Free 30-minute consultation with CA V. Viswanathan to scope your specific requirement, identify the right approach, and provide a written fixed-fee quote within 24 hours. Engagements typically commence within 3-5 working days of acceptance, with kickoff document checklist shared upon engagement letter signing. References from comparable engagements available on request, subject to confidentiality. Call +91 99622 60333 or email support@virtualauditor.in to schedule.

Strategic Business & Compliance Insights

Frequently Asked Questions

What does 'fair value is an exit price' mean under Ind AS 113?
It means fair value is the price a market participant would receive to sell an asset or pay to transfer a liability in an orderly transaction at the measurement date — not what the entity paid, and not what it intends to do with the asset. The measurement is market-based and hypothetical: it assumes a sale in the principal or most advantageous market to a knowledgeable, willing buyer. This exit-price concept is the foundation of the whole standard and drives the choice of market, participants and technique.
What is the fair-value hierarchy and why does it matter?
Ind AS 113 classifies inputs into three levels: Level 1 is quoted prices in active markets for identical assets; Level 2 is other observable inputs such as comparable yields or multiples; Level 3 is unobservable inputs based on the entity's own assumptions. The classification of a measurement is set by the lowest significant input. It matters because the level drives the disclosure burden — Level 3 requires a sensitivity analysis and a movement reconciliation — and because it signals to users how much judgement underlies the number.
What is 'highest and best use' and when does it apply?
Highest and best use applies only to non-financial assets. It requires fair value to reflect the use of the asset by market participants that is physically possible, legally permissible and financially feasible — even if that differs from how the entity currently uses it. A property used as a warehouse but zoned for higher-value development must be measured at the development value if that is what market participants would pay. Identifying the correct highest and best use is a key judgement auditors examine on property and specialised assets.
How do you choose between the market, income and cost approaches?
By the availability and reliability of inputs. The market approach is preferred where quoted prices or good comparable-transaction data exist. The income approach — discounting future cash flows or earnings — suits unlisted businesses, intangibles and income-producing property. The cost approach, depreciated replacement cost, is used for specialised assets where neither market nor income data is dependable. Often more than one approach is applied and the results weighed, always maximising observable inputs and minimising the entity's own assumptions.
What disclosures does Ind AS 113 require for Level 3 measurements?
Level 3 measurements carry the heaviest disclosure: the valuation technique and the unobservable inputs used, a quantitative sensitivity analysis showing how the fair value would change with reasonably possible alternative inputs, a reconciliation of opening to closing balances including gains, losses, purchases and settlements, and the entity's policy for transfers into and out of Level 3. Preparing this pack alongside the valuation, rather than at year-end, is what keeps a Level 3 audit from becoming a scramble.
Does Ind AS 113 require an independent valuer?
The standard itself does not mandate an external valuer, but it requires the measurement to be robust, market-based and fully disclosed, and it places the burden of defending Level 3 judgements on management. In practice, auditors expect independent valuation support for material unlisted investments, investment property and intangibles, precisely because those are Level 3 measurements built on unobservable inputs. An independent report with a complete disclosure pack is the most efficient way to satisfy the auditor and support the board.
How is Ind AS 113 fair value different from a FEMA or tax valuation?
Ind AS 113 measures an exit price for financial reporting, applying the hierarchy, highest-and-best-use and prescribed disclosures. A FEMA valuation certifies a floor or cap price for a cross-border transaction under the NDI Rules. A tax valuation under Rule 11UA determines fair market value for Section 56 and capital-gains purposes using prescribed formulae. The same asset can legitimately carry different figures under each regime because they answer different questions; we reconcile them where a single transaction triggers more than one.