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The determination of the capitalization rate on the basis of the weighted average cost of capital (WACC) is a central requirement of the IDW. This requires, among other things, the determination of the riskfree base rate for a (quasi-)risk-free capital market investment.
The term riskfree base rate refers to the long-term achievable yield on public bonds without default risk (see IDW S1 para. 116 ff.). In accordance with the IDW guidelines (FN 08/2016), interest rates below 1.0% are to be rounded to 0.10 percentage points. For interest rates higher than 1.0%, the original recommendation of the FAUB is applied, according to which rounding to 0.25 percentage points is used.
The Institute of Public Auditors in Germany (IDW) has codified guidelines for the valuation of companies in the IDW Standard S1 (IDW Standard: Principles for the Performance of Business Valuations - IDW Standard 1 as amended in 2008). These guidelines have established themselves as the standard both in practice and in legal disputes. They were supplemented by IDW RS HFA 10 (IDW Statement on Accounting: Application of the principles of IDW Standard 1 in the valuation of participations and other company shares for the purposes of an annual financial statement under commercial law), which describes how the determined company values are incorporated into the accounting.
The IDW recommends using the capital market data published by the Bundesbank (see IDW: Wie wird der Basiszinssatz im Rahmen objektivierter Unternehmensbewertungen ermittelt? in IDW Fragen und Antworten: Zur praktischen Anwendung der Grundsätze zur Durchführung von Unternehmensbewertungen nach IDW Standard 1 i.d.F. 2008 / F & A zu IDW Standard 1 i.d.F. 2008).
The following points must be taken into account when determining and rounding the riskfree base rate:
These rounding specifications ensure that the interest rates determined are both precise and practicable, which is crucial for the accuracy of the business valuation.
Rounding the riskfree base rate in accordance with the requirements of IDW S1 is an essential step in the business valuation process. Observing the specific rounding rules ensures the accuracy and reliability of the valuation results. smartZebra's tools and expertise can help to implement these processes efficiently and correctly to meet the requirements of IDW S1.
The riskfree base rate corresponds to the long-term achievable yield on public bonds without default risk. It forms the basis for calculating the weighted average cost of capital (WACC) and is therefore decisive for the business valuation.
Interest rates below 1.0% are rounded to 0.10 percentage points, while interest rates above 1.0% are rounded to 0.25 percentage points.
The IDW recommends using the capital market data published by the Bundesbank.
The IDW S1 Standard is a guideline issued by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer) that codifies the principles for conducting business valuations and has become established as a standard in practice.
The riskfree base rate and the company values determined are integrated into the accounting under commercial law in accordance with the requirements of IDW RS HFA 10.
smartZebra provides tools and data that simplify the complex process of determining and applying the riskfree base rate, enabling accurate analysis and ensuring compliance requirements are met.
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