Testing investment property fair value disclosure means verifying, for property carried under the cost model, that the fair value shown in the notes is current, was prepared on a reasonable basis by a competent valuer, and reflects inputs consistent with observable market evidence — then checking the disclosure itself names the valuation technique, the level in the fair value hierarchy, and the key assumptions, as Ind AS 40 and Ind AS 113 require. A disclosed figure that is simply last year's valuation rolled forward unchanged is the single most common failure in this note.
Why this disclosure gets less scrutiny than it needs
Because the property is carried at cost, the fair value figure never hits the P&L or the balance sheet total, which makes it easy to treat the note as a formality. It is not: a stale or unsupported fair value disclosure is a disclosure deficiency on its own, independent of the carrying amount.
The testing sequence
- 01Identify every property classified as investment property and confirm the classification is still correctA property that has moved to owner-occupation, or begun to be developed for sale, should have been reclassified. Fair value disclosure obligations do not apply to property that no longer meets the definition.
- 02Obtain the valuation report for each property and assess the valuer's competence and objectivityQualification, relevant experience with the property type and location, and any relationship with the entity that could affect objectivity, following the same rigour applied to any management's expert.
- 03Confirm the valuation date is close enough to the reporting date to be currentA valuation more than a year old, with no update for intervening market movement, does not support a current fair value disclosure.
- 04Test the key inputs against independently obtained market evidenceCapitalisation rate, comparable transaction prices per square foot, or discounted cash flow assumptions, checked against published market data or recent comparable transactions the entity itself has seen.
- 05Reperform the valuation computation where feasibleFor an income-capitalisation approach this is usually straightforward; confirm the valuer's arithmetic ties to the stated inputs before relying on the conclusion.
- 06Check the disclosure note against the specific requirementsValuation technique used, significant unobservable inputs where level 3 applies, and a statement of whether an independent valuer was used. A number with none of this context is an incomplete disclosure even if it is accurate.
| Disclosure element | What supports it |
|---|---|
| Fair value figure | Current valuation report, dated close to the reporting date |
| Valuation technique and hierarchy level | Explicit statement in the valuer's report, cross-checked to the note |
| Key assumptions | Capitalisation rate or DCF inputs, tested against independent market data |
| Valuer's competence and independence | Qualification and relationship assessed and documented |
Regulatory requirement
Ind AS 40 requires disclosure of the fair value of investment property even where the cost model is applied, and Ind AS 113 governs the hierarchy and assumption disclosures that accompany it. Verify the current text before concluding.
How we think about this
Checking that a disclosure contains the elements a standard requires, and tying inputs to a dated source, is a checklist exercise that should never be skipped or sampled away. Assessing whether a capitalisation rate is actually reasonable for a given location and property type is a judgement an auditor has to form, informed by the market evidence, not handed to a template.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Fixed assets & capexInd AS 40: investment property, and why it's classified by purpose, not by typeThe same physical building can be investment property or ordinary PPE depending entirely on why the company holds it — the classification question is purpose, not bricks.
- Audit workflow & automationSA 540: auditing accounting estimates, where judgment replaces a verifiable numberAn estimate can't be vouched to a source document the way an invoice can. SA 540 is about what replaces vouching when there's no single right answer to check against.
- Audit workflow & automationSA 620: using the work of an auditor's expertA qualified expert's signature on a report is not, by itself, sufficient audit evidence. SA 620 is about what the auditor still has to do with that report.
- Fixed assets & capexFixed asset register audit: completeness and accuracy checksWhat a fixed asset register must contain, how to tie it to the general ledger, and the gaps that quietly survive year after year if nobody checks for them.
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