Understanding the Basis of Value Matters More Than Ever
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October 08, 2025
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Different forms of value have different meanings, and these differences are crucial for valuation practitioners, legal professionals in commercial disputes, business leaders in financial decision-making and for financial and tax reporting. Using the incorrect basis of value can be detrimental and may lead to the loss of a critical case for a client, to regulatory sanctions or to reputational damage.
This article outlines the importance of the basis of value, the consequences of choosing the incorrect basis of value and an example of how FTI Consulting provides valuation opinions on the correct basis.
Why Basis of Value Matters
The basis of value sets the stage for everything that follows in a valuation, including methods, assumptions, inputs and conclusions. It informs the fundamental assumptions underpinning the valuation, and links directly to the intended use. Under International Valuation Standards1 (‘IVS’) 101 and 102 and Accounting Professional and Ethical Standards (‘APES’) 225,2 valuers must agree on and document the appropriate basis of value as part of the scope of work.
In today’s complex business environment, clearly understanding the definition of the selected form of value is more important than ever to regulators. In August 2025, the Australian Securities & Investments Commission (‘ASIC’) highlighted the importance of sufficient disclosures about the basis for choosing valuation methodologies and the selection of valuation figures and valuation ranges in independent expert reports. Violating these requirements could lead to regulatory scrutiny, such as indicated by recent ASIC publications.3 Similarly, in December 2024, the Australian Prudential Regulator (‘APRA’) issued a guidance note on the governance of unlisted asset valuations for the superannuation sector.4 This note highlighted the importance of consistent approaches to fair value reporting of unlisted assets. All too often, ‘fair value’ valuation reports provided to tax authorities are rejected because they were prepared for financial reporting purposes — rather than taxation.
Without a clear understanding of the basis of value, a valuation may be misaligned with stakeholder expectations, valuation inputs and assumptions may be flawed or irrelevant, the valuation opinion may not be fit for purpose and the conclusion may be non-compliant with IVS or regulatory frameworks.
Nuances Are Pivotal
In our experience, selecting the appropriate basis of value requires expertise across accounting, regulatory, legal and commercial contexts to navigate the foundational principles and nuances with precision and confidence. For example, FTI Consulting recently helped a client in the financial advisory industry navigate the intricacies of the basis of value for multiple purposes, including impairment testing, tax reporting and strategic decision-making.
By working closely with the client’s stakeholders, our team was able to:
- Map out the valuation’s purposes and applicable bases of value at the outset, ensuring no surprises down the line about the deliverables’ acceptability to the relevant stakeholders, which included the tax authorities, auditors and investors
- Streamline the process to adopt a single valuation process for all purposes, saving time and costs relating to the gathering of information, meetings with the management team of the client and reconciling the requirements of different stakeholders of the valuations
- Reconcile value across different definitions and purposes, ensuring reliability and documenting the audit trail so that questions relating to the reasons for different valuations are addressed up front, taking a proactive approach
The key to this engagement was assembling different subject-matter experts in a single engagement and valuation process: experts in AASB-16 Leases assessed the impact of leases on a valuation for financial reporting purposes, and valuation experts with tax knowledge helped quantify the valuation adjustments for minority interests. Ultimately, we helped the client manage both their reputation and regulatory risks by ensuring that related valuations were prepared on a consistent basis and complied with regulatory requirements.
In summary, reconciling the outcomes from various approaches requires a deep understanding of the appropriate basis of value for each different purpose. A single process and reconciliation of value and, crucially, an understanding of the basis of value, will ensure the valuation is fit-for-purpose, robust, reliable and compliant with relevant standards and regulations, enabling informed decision-making and increasing stakeholder trust.
A Practical Guide to Basis of Value
The table below matches common bases of value to typical use cases, as defined in IVS 102 and other sources. This is a guideline only and the valuation impacts always should be assessed on a case-by-case basis.
| Basis of Value | Source | Definition Summary | Common Use Cases of the Basis of Value by Market Participants |
|---|---|---|---|
| Market Value | IVS | Price in an orderly, arm’s-length transaction between knowledgeable, willing parties | Secured lending, transactional due diligence, tax purposes in Australia |
| Investment Value | IVS | Value to a specific owner based on their investment/operational goals | Investment performance assessments, strategic planning, M&A internal pricing |
| Equitable Value | IVS | Price reflecting the respective interests of identified parties | Litigation support, taxation disputes, family law |
| Fair Market Value | International Business Valuation Glossary (2022)5 | The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of relevant facts | IVSC no longer includes this terminology latest standard released in January 2025. However, a similar definition of value is included in IVS for equitable value above, albeit without specific reference to ‘identified parties.’ This approach is common for valuation for strategic decision making, negotiations between shareholders and U.S. GAAP-based accounting. |
| Fair Value | IFRS | Defined under International Financial Reporting Standards (‘IFRS’)13: exit price in an orderly transaction between market participants | Financial reporting under IFRS-compliant frameworks IVSC recognises that many national, state and local agencies use fair value as a basis of value as defined by courts in prior cases. Valuations considering fair value basis are also required when preparing independent expert report and also mentioned in the ASIC Regulatory Guide 111. |
| Synergistic Value | IVS | Value arising from combining two or more assets where the combined value exceeds the sum of individual values | M&A involving strategic or operational synergies |
| Liquidation Value | IVS | Amount realised in a compelled sale under specified conditions | Insolvency, restructuring, forced divestments |
In conclusion, it is imperative that the appropriate basis of value is identified at the outset of the valuation process, given the nuances outlined above. This will facilitate regulatory compliance and save valuable time and money for both the client and the stakeholders involved.
The Valuation Advisory Team at FTI Consulting has an in-depth understanding of different basis of value and experience of their application for different purposes and therefore, is well-placed to assist you with your valuation services needs. Please contact the Head of Australia Valuations Advisory, Fiona Hansen on Fiona.Hansen@fticonsulting.com for further details.
Footnotes:
1: https://ivsc.org/standards/
2: https://apesb.org.au/wp-content/uploads/2024/10/APES_225_Oct_2024.pdf
3: https://www.asic.gov.au/about-asic/corporate-publications/newsletters/asic-corporate-finance-update/corporate-finance-update-issue-24/#disclosure and https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2025-releases/25-220mr-review-finds-greater-uplift-needed-in-quality-of-super-fund-financial-reports-and-audits/
5: International Business Valuation Glossary, jointly published by the American Society of Appraisers, Chartered Business Valuators Institute, Royal Institution of Chartered Surveyors, Taqeem - Saudi Authority for Accredited Valuers, 24 February 2022.
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Published
October 08, 2025
Key Contacts
Senior Managing Director, Head of Australia Forensic & Litigation Consulting
Senior Managing Director, Head of Australia Valuations Advisory
Senior Director