German Standard for Company Valuations, IDW S 1, Undergoes Major Revision

Germany's principal standard for conducting company valuations, "IDW S 1 Principles for the Performance of Company Valuations," has been published in a revised version. This updated standard, effective immediately, aims to modernize valuation practices to align with current business realities and academic research.

The revisions focus on contemporary emphases, sharpened definitions, and incremental developments influenced by business economics research, case law, and practical valuation experience. Key changes include the introduction of a "certified expert" as a potential role for the valuer, alongside the established functions of appraiser, consultant, and official appraiser.

Furthermore, a new valuation concept, "plausibilized decision value," has been established as an additional, alternative tool for decision-makers in transaction scenarios, complementing the fairness opinion. The standard also provides more explicit regulations concerning the valuer's responsibility for assessing the plausibility of management's plans and future earnings projections.

The concept of "perpetual annuity" has been fundamentally reconceptualized, with the "stabilized state" now only considered in exceptional cases. The approach to synergies in objective company valuation has also been adjusted, focusing on expected and plausible magnitudes within economic and legal frameworks, rather than distinguishing between real and artificial synergies.

Originally established in 2000 and previously revised in 2005 and 2008, the IDW S 1 standard has been a benchmark for company valuations in Germany. The extensive revision process involved significant deliberation within the relevant expert committee of the Institute of Public Auditors in Germany (IDW). BDO was involved through Hartmut Paulus, a member of the IDW's expert committee for company valuation and business economics.