Fair value

The price an asset would fetch, or a liability would cost to hand over, in an orderly sale between market participants on a given date; analysts also use the words loosely for their own estimate of what a share is worth. The accounting definition is an exit price and reads the same in Ind AS 113, IFRS 13 and US GAAP. The analyst's sense is intrinsic value under another name, and the two should not be confused: an accountant's fair value of a listed share is its market price.

The standards rank the evidence behind a fair value in three levels. Level 1 is a quoted price for the same asset in an active market. Level 2 uses observable inputs, such as prices of similar assets or market yield curves. Level 3 rests on the company's own assumptions, and it's the level to watch.

An insurer carrying ₹2,400 crore of Level 3 investments against ₹6,000 crore of equity has 40% of its book value resting on its own models. Investments at fair value through profit or loss move the income statement each year; those at fair value through other comprehensive income move equity instead.

Level 3 is the company's own opinion, so treat it like one.