Fair Value Measurement in Volatile Markets (ASC 820 / IFRS 13)

Volatility Changes What “Observable” Means

When markets move quickly, it can be difficult to distinguish temporary dislocation from a durable change in fundamentals. Fair value guidance emphasizes market participant assumptions, but it also requires judgment about which inputs best represent those assumptions as of the measurement date.

Key Themes for Robust Measurement

1. Input Hierarchy and Supportability

• Prioritize observable inputs when they are orderly and relevant
• Document why certain quotes or comparables are included or excluded
• Reconcile differences between multiple data sources

2. Calibration to Recent Transactions

Where there is a recent transaction price, calibration can help validate model inputs and reduce surprises at subsequent measurement dates. The key is to understand what has changed (market, performance, capital structure, or outlook) and reflect it consistently.

3. Consistency Across Assumptions

• Align discount rates, growth assumptions, and margins with each other
• Ensure working capital and capex assumptions match the business model
• Avoid embedding the same risk multiple times across inputs

4. Clear Documentation for Review

In periods of uncertainty, documentation is often as important as the model itself. A strong memo typically includes the rationale for key inputs, sensitivity analyses, and how conclusions reconcile to market evidence and prior periods.

Our Perspective

Volatile markets reward disciplined processes: establish a repeatable framework, use multiple valuation approaches where appropriate, and make assumptions explicit. That clarity improves auditability and enables better decision-making.