Fair Value vs Market Value (Intangibles)
Fair value vs market value for intangibles — what each means under IFRS 13 and IVS, when they converge, and which to use for PPA, M&A, and tax.
Introduction
For intangible assets, "value" is not a single number — it is a measurement that depends on the basis under which it has been calculated. The two most consequential bases in practitioner work are fair value and market value. The terms are often used interchangeably in casual conversation; they are not interchangeable in valuation reports, audit defence, or tax filings.
Under IFRS 13 and ASC 820, fair value is a precisely defined accounting measure built around the price that would be received in an orderly transaction between market participants. Under the International Valuation Standards (IVS) published by the IVSC, market value is the broader real-economy measure: the estimated amount at which an asset should exchange on the valuation date in an open and fair market. The two converge when the asset has an active market and the conditions of measurement match. They diverge when the asset is bespoke, illiquid, or when the basis incorporates entity-specific assumptions that the open market would not.
This comparison is the practitioner's quick reference for which basis to apply, when each is mandated by which framework, and where the divergence actually shows up in the work.
TL;DR: Fair value under IFRS 13 / ASC 820 is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date — explicitly an exit price, market-participant view, and assumes the highest and best use. Market value under the IVS is the estimated amount for which an asset should exchange in an open and fair market — broader, real-economy oriented, and more permissive of bespoke or entity-specific context where market evidence is thin. They converge when the asset has comparable evidence; they diverge where the asset is illiquid, bespoke, or carries entity-specific synergies.
Fair Value
Fair value is the basis defined by IFRS 13 Fair Value Measurement (used under IFRS — UK and global) and ASC 820 Fair Value Measurement (US GAAP). Both standards converged on a substantially identical definition in 2011-2013, so for cross-border practitioners the two can be treated as one body of guidance with minor presentation differences.
How fair value works
- Identify the asset and the unit of account (a single asset, a group of assets, or a reporting unit)
- Determine the principal market (the most active market) or, in its absence, the most advantageous market for the asset
- Apply the market-participant perspective — characteristics, assumptions, and risk attitudes of buyers and sellers in the principal market
- Measure the price that would be received in an orderly transaction — not a forced sale, not a liquidation
- Apply the asset's highest and best use, even if that differs from the current use by the holder
- Classify the measurement in the IFRS 13 three-level fair-value hierarchy:
- Level 1: quoted prices in active markets for identical assets
- Level 2: observable inputs other than Level 1 (e.g. quoted prices for similar assets, observable rates)
- Level 3: unobservable inputs — the majority of intangible asset measurements
When to use fair value
Fair value is the mandatory measurement basis whenever the relevant accounting standard requires it. The most common cases in intangible asset work:
- Purchase price allocation (PPA) under IFRS 3 and ASC 805 — every identifiable intangible recognised in a business combination must be measured at fair value
- Impairment testing under IAS 36 and ASC 350 — recoverable amount is the higher of fair value less costs of disposal and value in use
- Initial recognition of an intangible exchanged in a non-monetary transaction under IAS 38
- Disclosure under IFRS 13 of items measured at fair value on a recurring or non-recurring basis
- Tax fair value in jurisdictions that adopt IFRS-aligned fair-value rules (e.g. UK transfer-pricing arm's-length references)
A UK acquirer recognises a customer-relationships asset of £4.2m at fair value following an acquisition. The measurement is built on a market-participant view: the acquirer's specific cost-saving synergies are excluded; only the cash flows a typical market participant would expect are included. The discount rate reflects the risk a market participant would attach, not the acquirer's WACC. The classification falls at Level 3 of the IFRS 13 hierarchy because the inputs — customer retention curve, attributable revenue, contributory asset charges — are unobservable.
What you need to apply fair value
- A clear unit of account aligned to the relevant accounting standard
- Market-participant inputs — comparable transactions, comparable assets, observable rates
- The asset's highest-and-best-use assessment, even if the current holder uses it differently
- For Level 3 measurements (most intangibles), full disclosure of unobservable inputs, sensitivity analyses, and the valuation technique used
Fair value under IFRS 13 / ASC 820 is an exit price, a market-participant view, and assumes the highest and best use. Entity-specific synergies, costs, or strategic value that a market participant would not pay for are explicitly excluded. This is the single biggest definitional difference between fair value and the broader real-economy bases.
Market Value
Market value is the basis defined by the International Valuation Standards (IVS) published by the IVSC and adopted in practice across most jurisdictions for valuations carried out outside the strict accounting framework. It is the dominant basis in M&A advisory, transfer pricing, IP-backed lending collateral assessment, and general "what is this worth" engagements where the user is not the accounting framework.
How market value works
- Identify the asset and the basis of value (market value, as opposed to investment value or synergistic value)
- Establish the valuation date — the price reference point
- Assume an arm's-length willing buyer and willing seller, each acting knowledgeably and without compulsion
- Apply a reasonable marketing period sufficient for an effective transaction to occur
- Measure the estimated amount at which the asset should exchange on the valuation date
- Document the analysis in line with IVS 105 (Valuation Approaches and Methods) and any asset-specific IVS (e.g. IVS 210 for intangible assets)
When to use market value
Market value is the dominant basis for engagements where the output is not destined for the accounting framework. The most common cases:
- M&A advisory — fairness opinions, deal-price benchmarking, walk-away analysis
- IP-backed lending — loan-to-value assessment for intangible asset collateral
- Transfer pricing — arm's-length pricing for intra-group transfers (though tax authorities often translate market value into a fair-value-aligned figure for accounting purposes)
- Dispute resolution — litigation valuations where the question is "what would this exchange for in an open market"
- Strategic planning — what-is-this-worth conversations between founders, boards, and prospective acquirers
- Insurance valuations — replacement, indemnity, and business-interruption work referencing intangible asset value
What you need to apply market value
- A clear asset definition and basis of value statement
- Evidence of the open-market conditions — recent transactions, observable comparables, market sentiment
- A defensible marketing-period assumption
- A documented willing-buyer / willing-seller framework, including any assumed special-purchaser exclusions
- Compliance with the relevant IVS general standards (IVS 101-105) and the asset-specific IVS (IVS 210 for intangibles)
A PE fund is evaluating a take-private of a tech company. The fund's advisor produces a market-value estimate for the target's brand and customer relationships. The estimate uses comparable licensing transactions for the brand (RFR with market royalty rates) and an MPEEM for customer relationships using a market-participant discount rate. The output is in the form of a market-value range — not a single fair-value point — because the engagement supports a transaction decision rather than an accounting recognition.
Defensibility profile
Market value's defensibility comes from its real-economy framing. The advisor demonstrates that the figure reflects what a willing buyer and willing seller would settle on, given the asset's characteristics and the prevailing market. The challenge — for both the practitioner and the reviewer — is documenting the open-market assumptions with sufficient evidence. Where the asset is illiquid (most intangibles), the practitioner relies on comparable transactions, observable royalty benchmarks, and reasoned adjustments. The IVS framework requires the basis of value to be stated explicitly, so a market-value engagement should never be presented as a fair-value engagement and vice versa.
In IVS 104, market value explicitly excludes any element of value that would not be available to a typical purchaser in the open market — special purchaser premiums, synergistic value to a specific buyer, and forced-sale discounts are all excluded. This brings market value closer to fair value than the conversational use of the terms suggests. The remaining divergence lies in how each basis treats entity-specific costs, highest-and-best-use assumptions, and the unit of account.
Side-by-Side Comparison
The table below is the practitioner's quick reference. Each row is a decision criterion; each column is one of the two bases.
| Criterion | Fair Value (IFRS 13 / ASC 820) | Market Value (IVS) |
|---|---|---|
| Framework owner | IASB (IFRS 13) and FASB (ASC 820) — converged accounting standards | IVSC (International Valuation Standards Council) — global valuation profession standards |
| Definition | The price that would be received to sell an asset in an orderly transaction between market participants at the measurement date | The estimated amount for which an asset should exchange on the valuation date between a willing buyer and willing seller in an arm's-length transaction after proper marketing |
| Transaction type | Exit price — what would be received to sell | Open-market exchange — what would be received in a willing-buyer / willing-seller transaction |
| Buyer perspective | Market participant — typical buyer characteristics, not the holder | Willing buyer — arm's-length, knowledgeable, without compulsion |
| Highest and best use | Mandatory — measurement assumes highest and best use, even if the holder uses differently | Implicit — open-market valuations typically incorporate the most economically rational use |
| Entity-specific synergies | Excluded — only market-participant cash flows included | Excluded — special-purchaser premiums excluded under IVS 104 |
| Unit of account | Defined by the relevant accounting standard | Defined by the engagement scope and basis of value statement |
| Disclosure framework | IFRS 13 paragraphs 91-99 (three-level hierarchy, sensitivity analysis, valuation technique) | IVS 103 reporting requirements (scope, basis, methods, limitations) |
| Primary use cases | PPA (IFRS 3 / ASC 805), impairment (IAS 36 / ASC 350), non-monetary exchanges, recurring fair-value disclosures | M&A advisory, IP-backed lending, transfer pricing, dispute resolution, strategic planning |
| Output format | Single point estimate at the measurement date | Often a range, with point estimate stated as a best estimate |
| Hierarchy | Three-level fair-value hierarchy (Level 1, 2, 3) — most intangibles at Level 3 | No explicit hierarchy — narrative documentation of evidence quality |
| When the two converge | Active market exists, comparable evidence is observable, no entity-specific synergies in play | Same as fair value — observable market, comparable transactions, no special-purchaser elements |
| When the two diverge | Where the open-market evidence is thin but a market-participant assumption can be constructed (typical Level 3 intangible measurement) | Where the engagement supports a transaction decision and the output is a range rather than a single accounting point |
| Defensibility focus | Three-level hierarchy classification, unobservable input justification, market-participant assumption documentation | Open-market assumption documentation, willing-buyer / willing-seller framework, comparable evidence sufficiency |
How the two bases interact in practice
In the typical intangible asset engagement, the practitioner often produces both — but for different audiences and at different stages of the work.
- Pre-deal — market-value range to support transaction pricing and negotiation
- Deal close — fair-value point estimate for accounting recognition in the post-acquisition balance sheet
- Post-deal — fair-value-less-costs-of-disposal in impairment testing alongside value-in-use comparisons
- Tax — market-value or fair-value-aligned figures depending on the jurisdiction's reference framework
The numerical gap between the two is typically narrow for actively traded assets and wider for bespoke intangibles where the market-participant assumption requires substantial reconstruction.
A SaaS company's developed-technology asset is valued for three purposes in the same year. (1) M&A advisory in February produces a market-value range of £6.2m-£7.4m using observable SaaS licensing comparables and a willing-buyer scenario. (2) The acquisition completes in May; PPA fair value under IFRS 13 lands at £6.8m, within the earlier range, using a market-participant royalty rate and a market-participant discount rate. (3) Impairment testing in December produces a fair-value-less-costs-of-disposal of £6.5m alongside a value-in-use of £7.2m — the higher of the two (£7.2m) is the recoverable amount, against a carrying value (post-amortisation) of £6.3m. No impairment.
Why the Distinction Matters
The CFO and advisor impact of getting this right falls into three areas.
Accounting compliance. Fair value is the only acceptable measurement basis for IFRS 3 / ASC 805 PPA, IAS 36 / ASC 350 impairment, and IFRS 13 recurring fair-value disclosures. Presenting a market-value figure where fair value is required will be challenged in audit and may force a retrospective restatement. The two bases are not interchangeable in regulated financial reporting.
Engagement scope and reporting. IVS engagements that use fair value must state so explicitly; engagements that use market value must state so explicitly. Mixing the two — for example, producing an "indicative fair value" for an M&A discussion — creates documentation risk for both the practitioner and the user. The IVS framework requires basis-of-value statements to be unambiguous.
Dispute and tax exposure. Tax authorities increasingly reference IFRS 13 fair value as the benchmark for arm's-length transfer pricing of intangibles. Where the practitioner has produced a market value for advisory purposes, an explicit reconciliation to fair value is often needed before the figure can be used in a tax submission or in a transfer-pricing study.
Fair value and market value converge for assets with active markets and diverge for bespoke intangibles. The practitioner's job is to know which basis the user needs, document the basis explicitly, and reconcile across bases when the same asset must serve multiple purposes (deal, accounting, tax) in the same year.
FAQ
What is the difference between fair value and market value for intangible assets?
Fair value is the IFRS 13 / ASC 820 accounting measure: the price that would be received in an orderly transaction between market participants at the measurement date, with the highest and best use assumption mandatory. Market value is the IVS measure: the estimated amount at which an asset should exchange between a willing buyer and willing seller in an open market. They converge when an active market exists and comparable evidence is observable; they diverge when the asset is bespoke and the basis of value requires entity-specific or transaction-specific framing.
Which framework should I use for PPA — IFRS 13 or IVS?
For purchase price allocation under IFRS 3 (UK and global) or ASC 805 (US), fair value as defined by IFRS 13 / ASC 820 is mandatory. The IVS framework can support the methodology (IVS 210 covers intangibles), but the basis of value must be fair value under the accounting standards. Practitioners typically document the engagement as fair-value-under-IFRS-13 with reference to the IVS methodology where helpful.
Are fair value and market value the same number?
Often, yes — for assets with observable markets and no entity-specific elements, the two bases produce numerically close results. They diverge where the open-market assumption requires reconstruction (most Level 3 intangibles), where the engagement output is a range rather than a point, or where one basis incorporates a highest-and-best-use assumption that differs from the asset's current use. The gap is typically narrow but should be reconciled and documented.
What is the fair-value hierarchy under IFRS 13?
IFRS 13 establishes a three-level hierarchy. Level 1 inputs are quoted prices in active markets for identical assets — rare for intangibles. Level 2 inputs are observable inputs other than Level 1 — quoted prices for similar assets, observable rates, observable royalty data. Level 3 inputs are unobservable — discounted cash-flow models with unobservable assumptions, royalty rates from limited comparables, customer-attrition curves. The vast majority of intangible asset measurements sit at Level 3, which carries the highest disclosure burden.
Can I use market value for impairment testing under IAS 36?
Partially. IAS 36 requires the recoverable amount to be the higher of fair value less costs of disposal (FVLCD) and value in use. FVLCD is an IFRS 13 fair-value figure, not an IVS market-value figure. However, the practitioner often draws on IVS-aligned market-value evidence (comparable transactions, market royalty rates) to support the fair-value measurement. The output classification must remain fair value under IFRS 13 for the accounting standard to be satisfied.
How do I document the basis of value in a valuation report?
Under IVS 103, every valuation report must state the basis of value clearly and unambiguously, typically in the executive summary and in a dedicated assumptions section. Where fair value under IFRS 13 / ASC 820 is the basis, the report must reference the accounting standard and confirm the market-participant assumption and the highest-and-best-use assessment. Where market value under IVS is the basis, the report must reference IVS 104 and confirm the willing-buyer / willing-seller framework. Mixed-basis engagements need a clear reconciliation section.
Does HMRC accept market value for transfer-pricing studies?
HMRC's transfer-pricing rules reference the arm's-length principle as the core standard, with practical guidance drawing on both OECD principles and UK-specific case law. Market value evidence under IVS is regularly used as the foundation for arm's-length pricing of intangibles, with explicit reconciliation to fair value where the asset is also recognised on the IFRS balance sheet. Practitioners often produce a combined output that satisfies both the transfer-pricing requirement and the accounting fair-value disclosure.
What is the role of the IVSC in intangible asset valuation?
The International Valuation Standards Council (IVSC) is the global standards body for the valuation profession. Its IVS framework defines bases of value (market value, fair value, investment value, synergistic value), valuation approaches and methods (IVS 105), and asset-specific standards including IVS 210 for intangibles. IVS is widely adopted in M&A advisory, IP-backed lending, transfer pricing, and dispute resolution. It complements rather than replaces the accounting frameworks — practitioners often work to both IVS and IFRS 13 / ASC 820 in parallel.
When to Seek Expert Support
Most intangible asset engagements require the practitioner to navigate both bases — sometimes in the same report, sometimes for the same asset at different stages of its lifecycle. Edge cases — assets where the market-participant assumption is contested, transactions where the synergy uplift is material, impairment tests where the recoverable amount sits close to carrying value — typically warrant specialist input.
Opagio's Asset Valuator module (within Opagio Intangibles) produces measurements aligned to both IFRS 13 fair value and IVS market value, with explicit basis-of-value statements in the output. The model documents the unobservable inputs, the comparable evidence used, and the reconciliation between bases where the same asset is being valued for multiple purposes. The structured output is built to satisfy both audit defence (IFRS 13 Level 3 disclosures) and advisory reporting (IVS 103 report content requirements).
For high-stakes engagements — large PPAs, contested impairment reviews, tax submissions referencing fair value — the right pattern is to automate the mechanical work, then have a qualified specialist review the assumptions, the basis-of-value statements, and the cross-basis reconciliations.
Book a demo: See how Asset Valuator produces parallel fair-value and market-value outputs for the same intangible asset, with a fair-value hierarchy classification and an IVS-aligned basis-of-value statement built in. Book a demo or speak to our team.
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