The regulatory landscape surrounding fair value measurement and disclosure has entered a new phase of intensity in 2025-2026, with both the U.S. Securities and Exchange Commission (SEC) and the European Securities and Markets Authority (ESMA) significantly escalating enforcement activities. This heightened scrutiny reflects growing concerns about disclosure quality, valuation methodology transparency, and the adequacy of fair value hierarchies in an environment marked by elevated interest rates, geopolitical uncertainty, and rapid technological change.

For CFOs, audit committees, and valuation professionals, understanding the evolving enforcement priorities and compliance expectations has become mission-critical. Recent enforcement actions reveal patterns that every organization measuring assets or liabilities at fair value must address proactively.

01 The Regulatory Framework: ASC 820, IFRS 13, and Enforcement Mandates

Fair value measurement under U.S. GAAP (ASC 820) and IFRS (IFRS 13) requires entities to measure certain assets and liabilities at their exit price—the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Both standards establish a three-level hierarchy based on input observability:

Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or market-corroborated inputs
Level 3: Unobservable inputs requiring significant management judgment and estimation

The SEC's enforcement authority derives from its mission to protect investors and maintain fair, orderly, and efficient markets. The agency has consistently emphasized that fair value disclosures must provide investors with sufficient information to understand valuation techniques, key assumptions, and sensitivity to changes in those assumptions. ESMA, while not possessing direct enforcement powers, coordinates with national competent authorities across the European Union to ensure consistent application of IFRS and issues enforcement priorities that guide supervisory activities.

02 2025-2026 Enforcement Trends: Key Patterns Emerging

Inadequate Level 3 Disclosures

The most significant enforcement focus in 2025-2026 has centered on Level 3 fair value measurements, where management judgment plays the largest role. Recent SEC comment letters and enforcement actions reveal systematic deficiencies in how companies describe their valuation processes for illiquid or complex instruments.

In the first quarter of 2025 alone, the SEC issued comment letters to approximately 340 registrants regarding fair value measurement disclosures, representing a 28% increase from the comparable 2024 period. Of these, roughly 65% related specifically to Level 3 measurements, with particular emphasis on:

Insufficient quantitative information about unobservable inputs and their ranges
Boilerplate descriptions of valuation techniques that fail to explain how inputs were determined
Lack of sensitivity analysis showing how changes in key assumptions would affect fair value measurements
Inadequate explanation of interrelationships between unobservable inputs

ESMA's 2025 European Common Enforcement Priorities similarly highlighted fair value measurement as a supervisory focus area, with national regulators instructed to examine whether entities provide sufficient information about valuation techniques, inputs, and the level of judgment involved—particularly for financial instruments, investment property, and business combinations.

Private Equity and Venture Capital Portfolio Valuations

The sustained high interest rate environment that persisted through 2024 and into 2025 created significant valuation challenges for private equity and venture capital portfolio companies. Regulators have intensified scrutiny of how fund managers and publicly traded investment vehicles value these holdings, particularly when valuations appear disconnected from observable market indicators.

A notable 2025 enforcement case involved a publicly traded business development company (BDC) that failed to adequately adjust its portfolio company valuations despite clear evidence of deteriorating operating performance and compressed public market multiples in comparable sectors. The SEC found that the BDC's valuation committee had received detailed information about covenant violations and liquidity concerns at several portfolio companies but failed to reflect these factors in fair value measurements for two consecutive quarters. The resulting enforcement action included a $4.2 million penalty and required restatements that reduced reported net asset value by 11%.

The case underscored a critical principle: fair value measurements must reflect all information available to management at the measurement date, not merely information that supports desired valuation outcomes.

Cryptocurrency and Digital Asset Valuations

The maturation of cryptocurrency markets and increasing institutional adoption has brought digital asset valuations under intense regulatory scrutiny. The SEC's 2025 guidance on accounting for crypto assets, while not changing the fundamental fair value framework, emphasized that entities must carefully consider market depth, trading volume concentration, and the potential for market manipulation when determining whether quoted prices represent Level 1 inputs.

Several enforcement actions in late 2024 and early 2025 involved companies that classified thinly traded tokens as Level 1 measurements based on quoted prices from exchanges with minimal volume and questionable market integrity. In one case, a technology company held significant positions in various tokens that represented more than 30% of total daily trading volume on the exchanges used for pricing. The SEC determined these holdings should have been classified as Level 2 or Level 3, requiring different disclosure and potentially different valuation approaches.

03 ESMA's Coordinated Supervisory Approach

ESMA's enforcement strategy differs structurally from the SEC's but has proven equally consequential for European issuers. The authority's 2025-2026 enforcement priorities reflect coordination among 27 national competent authorities, creating a more harmonized supervisory approach across the EU.

Investment Property Fair Value Measurements

European real estate companies have faced particular scrutiny regarding investment property valuations under IAS 40. The combination of rising interest rates, changing office utilization patterns post-pandemic, and economic uncertainty in several EU member states created significant valuation complexity throughout 2024 and into 2025.

ESMA's October 2025 public statement highlighted recurring deficiencies in investment property disclosures, including:

Insufficient disaggregation of property portfolios when different property types or geographic locations have materially different valuation characteristics
Inadequate disclosure of capitalization rates, discount rates, and expected rental growth assumptions
Limited explanation of how external valuations were obtained and the extent to which management adjusted appraiser conclusions
Failure to provide sensitivity analysis showing the impact of reasonably possible changes in key assumptions

National regulators in Germany, France, and the Netherlands collectively issued over 180 enforcement notices to real estate companies in 2025, requiring enhanced disclosures or, in some cases, restatements. The average adjustment in cases requiring restatement was a 7.3% reduction in investment property fair values, with corresponding impacts on debt covenant compliance and dividend capacity.

Business Combination Fair Value Measurements

IFRS 3 requires acquirers to measure identifiable assets acquired and liabilities assumed at fair value as of the acquisition date. ESMA's 2025 enforcement priorities emphasized that purchase price allocation must reflect rigorous, supportable valuation analysis rather than reverse-engineering to achieve desired goodwill levels.

A significant 2025 case involved a European pharmaceutical company that acquired a biotech firm with several drug candidates in clinical trials. National regulators determined that the acquirer's valuation of in-process research and development (IPR&D) assets failed to adequately consider probability of technical and regulatory success, applied discount rates inconsistent with the risk profile of early-stage assets, and inadequately disclosed the sensitivity of fair value measurements to key assumptions.

The enforcement action required the company to restate its purchase price allocation, reducing IPR&D fair values by €340 million and correspondingly increasing goodwill. More significantly, the case established clearer expectations for disclosure of valuation methodologies, probability assumptions, and discount rate derivation in pharmaceutical and biotech acquisitions—a sector that saw over €87 billion in transaction value across Europe in 2024-2025.

04 Common Deficiencies Across Jurisdictions

Despite differences in regulatory structure and legal frameworks, SEC and ESMA enforcement actions reveal remarkably consistent themes regarding fair value measurement and disclosure deficiencies:

Insufficient Disclosure of Valuation Techniques

Both regulators consistently cite inadequate description of valuation techniques as a primary deficiency. Generic statements that an entity used "market approach," "income approach," or "cost approach" without explaining the specific methods applied (e.g., discounted cash flow, guideline public company method, relief-from-royalty method) fail to meet disclosure requirements.

Effective disclosure must explain:

The specific valuation method(s) applied
Why the chosen method is appropriate given the asset or liability's characteristics
How the method was implemented, including the source and selection of inputs
Whether multiple methods were used and how results were weighted or reconciled

Inadequate Quantitative Information About Unobservable Inputs

For Level 3 measurements, both ASC 820 and IFRS 13 require disclosure of quantitative information about significant unobservable inputs. Yet enforcement actions consistently reveal that companies provide only qualitative descriptions or present inputs without context about their derivation or reasonableness.

For example, stating that a discount rate of "15%" was used provides minimal useful information. Effective disclosure would explain the components of that rate (risk-free rate, equity risk premium, size premium, company-specific risk adjustments), how each component was determined, and why the resulting rate is appropriate given the asset's risk characteristics.

Lack of Sensitivity Analysis

Perhaps the most frequent deficiency across both SEC and ESMA enforcement actions is the absence of meaningful sensitivity analysis. When significant unobservable inputs could reasonably vary within a range, entities must disclose how changes in those inputs would affect fair value measurements.

A 2025 SEC enforcement case involved a specialty finance company that used a discounted cash flow model to value loan portfolios classified as Level 3. While the company disclosed the weighted-average discount rate used (9.2%), it provided no information about the range of rates applied to different loan categories or how a 100-basis-point change in discount rates would affect fair value. The SEC determined this omission was material given that a 100-basis-point increase would have reduced reported fair value by $67 million, or 4.8% of shareholders' equity.

05 The Technology Factor: AI and Alternative Data in Valuations

An emerging enforcement theme in 2025-2026 involves the use of artificial intelligence and alternative data sources in fair value measurements. As valuation technology advances, regulators are grappling with how to ensure appropriate disclosure and validation of AI-driven valuation models.

The SEC's Division of Corporation Finance issued informal guidance in mid-2025 indicating that entities using machine learning models or AI-driven valuation tools must disclose:

The nature and purpose of the AI tool or model
What inputs the model uses and their sources
How the model was validated and tested
What human oversight and judgment is applied to model outputs
Any limitations or known biases in the model

This guidance followed several instances where companies appeared to rely heavily on algorithmic valuations without adequate disclosure of methodology or validation procedures. While technology can enhance valuation efficiency and consistency, regulators have made clear that it does not reduce disclosure obligations or eliminate the need for professional judgment and validation.

06 Practical Implications for Valuation Professionals

The intensified enforcement environment creates several imperatives for organizations measuring assets or liabilities at fair value:

Enhanced Documentation Requirements

Contemporaneous documentation of valuation judgments, assumptions, and methodologies has become essential. Enforcement cases consistently reveal that inadequate documentation makes it difficult for companies to defend their valuation conclusions or demonstrate that they considered all relevant information available at the measurement date.

Best practice documentation includes:

Detailed memoranda explaining valuation methodology selection and implementation
Support for all significant inputs, including market data sources, management forecasts, and assumption derivation
Analysis of alternative methods or assumptions considered and rejected
Evidence of appropriate review and challenge by qualified personnel
Clear audit trail from source data through final fair value conclusion

Robust Internal Controls Over Fair Value Measurements

Both the SEC and ESMA have emphasized that fair value measurements must be subject to appropriate internal controls. This includes segregation of duties between those responsible for generating forecasts or managing assets and those performing valuations, as well as independent review by qualified personnel.

Companies should implement formal policies and procedures governing:

Who is authorized to make fair value measurements and what qualifications they must possess
What methodologies are acceptable for different asset and liability types
How inputs are sourced, validated, and updated
What review and approval processes apply before fair value measurements are recorded
How often valuations are updated and what triggers interim remeasurement

Valuation Committee Effectiveness

Many organizations establish valuation committees to oversee fair value measurements, particularly for Level 3 assets and liabilities. Enforcement actions reveal that these committees often fail to provide meaningful oversight, instead rubber-stamping management conclusions without substantive challenge or analysis.

Effective valuation committees maintain detailed minutes documenting deliberations, questions raised, and rationales for conclusions reached. They actively challenge assumptions, request sensitivity analysis, and ensure that valuations reflect all available information rather than desired outcomes.

07 The Role of External Valuation Specialists

The complexity of fair value measurements and heightened enforcement scrutiny have increased reliance on external valuation specialists. However, regulators have made clear that engaging a third-party appraiser does not eliminate management's responsibility for fair value measurements or reduce disclosure obligations.

When using external specialists, companies must:

Ensure the specialist possesses appropriate qualifications and independence
Clearly communicate the valuation objective, including the specific asset or liability being valued and the measurement date
Provide complete and accurate information to the specialist
Understand and evaluate the specialist's methodology and assumptions
Determine whether the specialist's conclusion is reasonable and supportable

A 2025 ESMA enforcement case involved a company that received a valuation report from a reputable firm but failed to understand that the report was prepared for tax planning purposes using a different standard of value than fair value under IFRS. The company used the report's conclusion without adjustment, resulting in a material overstatement of asset fair values. The case reinforced that management cannot blindly rely on external reports without understanding their purpose, scope, and appropriateness for financial reporting.

08 Looking Ahead: 2026 Enforcement Priorities

Based on recent regulatory statements and observed enforcement patterns, several areas appear likely to receive heightened attention in 2026:

Climate-Related Asset Valuations

As climate disclosure requirements evolve, regulators are beginning to scrutinize whether fair value measurements adequately reflect climate-related risks and opportunities. This includes consideration of physical risks (asset damage from extreme weather), transition risks (policy changes, technological shifts), and changing market participant assumptions about future cash flows and useful lives.

Goodwill Impairment Testing

While goodwill is not measured at fair value after initial recognition under IFRS, impairment testing requires comparison of carrying amounts to recoverable amounts, which often involves fair value less costs of disposal calculations. The SEC has indicated increased focus on whether companies' impairment testing reflects current market conditions and whether disclosures adequately explain key assumptions, particularly for reporting units with limited headroom.

Cross-Border Consistency

For multinational companies, ensuring consistent application of fair value measurement principles across jurisdictions has become increasingly important. Regulators are examining whether companies apply different methodologies or assumptions for similar assets in different geographic locations without adequate justification.

09 Conclusion: Proactive Compliance in an Evolving Landscape

The 2025-2026 enforcement landscape reflects a fundamental shift in regulatory expectations around fair value measurement and disclosure. Both the SEC and ESMA have made clear that boilerplate disclosures, inadequate documentation, and valuation processes lacking rigor will face enforcement consequences.

For organizations measuring assets or liabilities at fair value, the imperative is clear: invest in robust valuation processes, comprehensive documentation, and transparent disclosure that provides investors with genuine insight into valuation methodologies, key assumptions, and measurement uncertainty. The cost of deficient practices—in terms of enforcement actions, restatements, reputational damage, and management distraction—far exceeds the investment required for compliance.

As regulatory scrutiny continues to intensify, valuation professionals must stay current with evolving enforcement priorities and best practices. Modern valuation platforms like iValuate provide the analytical rigor, documentation capabilities, and methodological consistency that help organizations meet heightened regulatory expectations while maintaining efficiency in their valuation processes.

The fair value measurement landscape will continue evolving as markets change, new asset classes emerge, and regulatory frameworks adapt. Organizations that embrace transparency, rigor, and continuous improvement in their valuation practices will be best positioned to navigate this environment successfully while providing stakeholders with the high-quality financial information they deserve.

SEC and ESMA Fair Value Enforcement: 2025-2026 Regulatory Landscape