Intangible asset valuations are complex, assumption-intensive exercises where errors compound. A single miscalculated contributory asset charge flows through to the primary asset value, which flows through to goodwill, which affects subsequent impairment testing for years to come. The stakes are high — audit findings, restatements, and tax challenges are all possible consequences of flawed valuations.
Over 30 years of advising on transactions, I have seen the same errors repeated across different industries, deal sizes, and valuation firms. These ten mistakes are the most common and the most consequential.
The vast majority of intangible asset valuation errors are not errors of calculation — they are errors of concept, assumption, or process. Understanding the ten most common mistakes is the fastest way to improve valuation quality and audit readiness.
The Multi-Period Excess Earnings Method isolates the earnings attributable to a single primary asset by deducting returns on all other assets. If MPEEM is applied to two assets simultaneously — for example, both customer relationships and technology — the same earnings are attributed to both assets, resulting in double-counting.
Only one asset per valuation can be the "primary" MPEEM asset. All other assets must be valued using alternative methods (RFR, cost approach, or with-and-without). If you find yourself applying MPEEM to more than one asset, stop and reconsider the approach.
The assembled workforce is not separately recognised under IFRS 3, but it absolutely requires a contributory charge in any MPEEM valuation. The workforce is essential to generating the earnings attributed to customer relationships and other primary assets. Omitting the workforce charge overstates the primary asset value by the full amount of the missing charge.
The workforce replacement cost — including recruitment, training, and productivity ramp-up — must be estimated and a fair return applied (typically 15-20%).
In Relief from Royalty valuations, the royalty rate is the most sensitive assumption. Common errors include:
A 1% royalty rate error can shift the asset value by 15-25%.
The WARA reconciliation is the single most important validation step in a purchase price allocation. It ensures that the individual asset values and discount rates are internally consistent with the acquisition price. Skipping the WARA — or performing it as an afterthought rather than an integral part of the process — means there is no assurance that the valuation is coherent.
When a PPA identifies both an order backlog and customer relationships, the backlog revenue must be excluded from the customer relationship cash flows. Otherwise, the committed revenue is counted once in the backlog value and again in the customer relationship value. This is one of the most frequently identified audit findings.
Overestimating useful life inflates asset values and defers amortisation; underestimating it does the reverse. Common errors:
A technology platform with a 20-year patent protection is assigned a 20-year useful life. But the technology will be replaced within 5-7 years by the acquirer's own platform. The useful life should be 5-7 years, not 20.
Discount rates must be asset-specific and internally consistent. Common errors include:
In-process R&D must be valued using probability-weighted cash flows that reflect the risk of project failure. Valuing IPR&D at 100% probability of success — simply because the acquirer intends to complete the project — overstates the fair value from a market participant perspective.
The probability of success should be based on the project's development stage, relevant industry benchmarks, and the specific technical and commercial risks.
The valuation report must document every significant assumption, the basis for that assumption, and the alternatives considered. Common documentation failures:
| Gap | Consequence |
|---|---|
| No basis for royalty rate selection | Auditor challenges the rate |
| No sensitivity analysis | Cannot demonstrate understanding of key risks |
| No WARA reconciliation workpaper | No evidence of internal consistency |
| No comparable transaction analysis | Cannot defend the approach |
| No useful life justification | Amortisation period challenged |
The rationale for assumptions is clearest when the analysis is being performed. Retrospective documentation invariably omits key reasoning.
Showing that you evaluated different rates, methods, or lives and explaining why you chose a specific one is far more persuasive than presenting a single figure without context.
From raw licensing database output to final royalty rate, from raw financial data to projected cash flows — the chain of evidence must be traceable.
The most impactful process error is leaving the PPA until after the deal closes. By that point, key personnel may have left, integration activities may have muddled the standalone economics, and the pressure to finalise financial statements compresses the timeline to the point where shortcuts become inevitable.
Best practice is to begin PPA planning during due diligence:
IAS 3 provides a 12-month measurement period to finalise the PPA after the acquisition date. This is a maximum, not a target. Best-in-class PPAs are substantially complete within 3-6 months.
Every error on this list is preventable. The common thread is insufficient rigour — in method selection, in assumption development, in cross-validation, and in documentation. Build quality into the process from the start: plan during due diligence, apply the right method to each asset, validate through WARA reconciliation, and document thoroughly. The Opagio Calculator enforces WARA reconciliation, flags common errors, and produces audit-ready documentation for all standard valuation methods. Start your valuation.
Tony Hillier is an Advisor at Opagio with 30 years of experience in structured finance, M&A advisory, and asset valuation. He has reviewed hundreds of purchase price allocations and has seen each of these errors in practice. Meet the team.
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