Fair value (accounting)

Fair value can matter after closing: CBV Institute’s glossary says that in a business combination, goodwill is measured using the consideration transferred, generally at fair value. The same words also appear in corporate law, so the meaning depends on the document. For valuation more broadly, see getting a business valuation before selling.

Two separate uses

For financial reporting, CBV Institute’s valuation glossary says the most commonly used definition is under IFRS and US GAAP: 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. Separately, under s. 190(3) of the Canada Business Corporations Act, and subject to s. 190(26), a shareholder who dissents and complies with that section is entitled to be paid by the corporation the fair value of those shares; the right to dissent in s. 190(1) is subject to ss. 191 and 241.

What to check or ask

• Which definition the agreement or statement uses, and who set it
• The measurement date, and how it compares with the valuation date
• Who determines the figure, and whether a valuator is involved