Adjustment of the market risk premium by the FAUB of the IDW: Implications for accounting

published on 25 september 2025 | reading time approx. 3 minutes

The Technical Committee for Business Valuation and Business Administration (Fachausschuss für Unternehmensbewertung und Betriebswirtschaft, FAUB) of the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer, IDW) has updated its recommendations for the market risk premium. Among other things, this has potential implications for valuations in the context of accounting under HGB and IFRS.

Background to the adjustment

On September 22, 2025, the FAUB of the IDW adjusted its recommendation for the assumable range of the market risk premium downward. One reason for this is the development of the capital markets in recent years: Since 2022, there has been a significant increase in the risk-free interest rate, and interest rates rose further in 2025. At the same time, implied return expectations on the stock market have fallen in the current year. Taking all relevant developments into account, the FAUB has concluded that an adjustment of the previous recommendations is appropriate.

New recommendation for the market risk premium

The FAUB now recommends a market risk premium

before personal taxes: from 5.25% to 6.75% (previously 6.00% to 8.00%);
after personal taxes: from 4.5% to 5.75% (previously 5.00% to 6.50%).

The adjustment reflects the current market environment and is based on an alignment with historical market risk premiums.

Implications for accounting under IFRS and HGB

The changed range for the market risk premium can have a direct impact on all valuation occasions where the cost of equity is derived using the Capital Asset Pricing Model (CAPM). In this context, the market risk premium—alongside the risk-free base rate and the beta factor—is a key exogenous input variable. This adjustment therefore also has a potential impact on various valuation events in the context of accounting under HGB and IFRS.

Key areas of application for this include, in particular, (goodwill) impairment tests in accord-ance with IAS 36 and the valuation of investments in accordance with the German Commercial Code (HGB), taking into account IDW RS HFA 10. If the lower range for the MRP results in lower equity costs and ultimately in a lower discount rate in the valuation model, this leads to relatively higher present values, which can ultimately lead to reduced pressure in the impairment test. This can result in less frequent write-downs or, depending on the accounting situation, the reversal of impairments already made.

However, it should be noted that the general interest rate level has risen again in recent years, meaning that higher risk-free base rates must also be applied. The specific effects must therefore always be assessed on a case-by-case basis against the background of the respective valuation model and, with regard to the equivalence principle, also in the context of the risk structure in the cash flow.

Conclusion and recommendations for action

The recommendation for the market risk premium lowered by the FAUB must be taken into account in all future valuations. All other things being equal, this could potentially lead to lower capital costs and thus higher present values in the respective valuation models. In individual cases, this could reduce the risk of impairments or even lead to reversals of impairment losses. Companies should analyze the individual effects of the new recommendations on their valuation models in terms of proper valuation and accounting in a timely manner and, if necessary, together with external experts, and document them accordingly.