IDW S 17 – When is the stock market price the “true” corporate value?

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Introduction

With the IDW S 17 (“Assessment of the appropriateness of the stock market-based compensation”), the Institute of Public Auditors in Germany (IDW) presented a new standard on November 11, 2025, which is intended to remove uncertainties in the valuation of listed companies.

While the stock market price is generally considered an objective, market-oriented indicator, it is also susceptible to distortions, illiquidity, or information deficits. The German Federal Court of Justice (Bundesgerichtshof, BGH) therefore requires that, when using the stock market price as a valuation method, it must always be checked whether it actually reflects the “true” or “full economic” value. IDW S 17 is intended to remedy this situation by providing a structured audit model for auditors and valuation experts . The aim is to make the appropriateness of stock market-based compensation comprehensible and verifiable – thus bridging the gap between capital market logic and valuation methodology.

Audit approach and criteria

Under IDW S 17, the stock market price is not applied automatically; instead, it serves as a basis that requires critical assessment. The price may only be used as an indicator of the company’s value if certain market and information conditions are met. Decisive in this context are the quality of the capital market and the efficiency of price formation, which are assessed on the basis of six key qualitative and quantitative evaluation criteria.

• Shareholder structure: Is there a large free float (atomistic shareholder structure) and no market power held by large or majority shareholders, e.g. through majority voting rights?
• Trading volume and market liquidity: Is the market liquid and is there sufficient trading activity of the stock on a regular basis to consider the market functional and efficient? Liquidity can be assessed using criteria such as the bid/ask spread or daily trading volume.
• Market and analyst coverage: Are there a large number of professional analyst forecasts of the company that show a relatively narrow range, is essential information publicly available and does the company fulfill its reporting obligations?
• Information and transparency: Are there no information asymmetries and does the share price reflect all information relevant to the share price, in particular through regular and complete capital market communication?
• Proximity to the valuation date: Does the stock market price under consideration realistically reflect the current situation of the company? Have the operational and financial structure of the company and the economic environment changed significantly between the reference period of the stock market price and the valuation date?
• Price stability and freedom from influence: Can unusual price fluctuations, insider trading, or takeover speculation be ruled out? If price fluctuations of more than 5% are detected that cannot be explained by new public information, the standard already assumes that there is suspicion of price manipulation.

Drawing on the analogy of road traffic, a three-level traffic light system is used to promote transparency, traceability and effective communication among experts, clients and courts. A criterion can be rated green if it is fully met. If a criterion is only partially met, it is rated yellow, and if the criterion is not met, it is rated red. If at least one of these traffic lights is red, the stock market price is not suitable as a valuation benchmark and other valuation methods (e.g., IDW S 1) are required. Only where all criteria are rated green may the stock market price be used as the “true” value without the need for a mandatory comparison. In case of a mixture of yellow and green, the objective value of the company must still be determined in accordance with IDW S 1. It is then at the discretion of the auditor whether the stock market price or the objective value of the company should be used as the “true” value. The more yellow lights there are, the more critical this question becomes. Deviations of less than 5% between the objective value of the company and the stock market price are considered reasonable in accordance materiality thresholds.

Practical relevance

IDW S 17 is highly relevant in practice for valuation purposes of publicly listed companies – particularly in situations involving minority shareholders or external shareholders. Typical applications include squeeze-outs and mergers, control and profit transfer agreements, delisting and other structural measures, as well as settlements in legal proceedings, which are often subject of legal disputes. In all these cases, the stock market price is a central but often uncertain anchor point for valuation. IDW S 17 creates, for the first time, a methodological tool with which the informative value of the stock market price can be objectively verified.

For auditors and valuation experts , the standard provides a clear audit system and documentation requirement, reduces room for interpretation, and enhances the traceability of valuation judgments. For companies, it creates predictability in transactions and increases legal certainty with regard to challenges of the compensation payments. For courts and minority shareholders, it offers better verifiability of court decisions and can thus reduce the potential for disputes.

It is important to note the difference here to the criteria for the relevance of the stock market price as a minimum settlement amount, which are not the focus of IDW S 17.

Conclusion and outlook

The IDW S 17 marks a significant step toward clearer and more uniform treatment of stock market-based valuations. The specified criteria and the traffic light system provide transparency regarding the conditions under which the market price is considered a suitable benchmark for the “true” value. At the same time, it remains to be seen how successful the practical implementation will be, particularly in the case of thinly traded stocks or during periods of heightened market volatility.