The regulatory landscape surrounding fair value measurement and disclosure has undergone a dramatic transformation in 2025-2026, with both the U.S. Securities and Exchange Commission (SEC) and the European Securities and Markets Authority (ESMA) significantly intensifying their enforcement activities. This heightened scrutiny reflects growing concerns about valuation quality, transparency, and the potential for financial reporting to mislead investors during periods of market volatility and economic uncertainty.

For CFOs, audit committees, and valuation professionals, understanding the evolving enforcement priorities and compliance expectations has become mission-critical. Recent enforcement actions have resulted in substantial penalties, restatements, and reputational damage for companies that failed to meet regulatory standards. This article examines the current enforcement landscape, analyzes key regulatory actions, and provides practical guidance for ensuring compliance with fair value measurement and disclosure requirements.

01 The Regulatory Framework: IFRS 13 and ASC 820 Under the Microscope

Fair value measurement standards—IFRS 13 under International Financial Reporting Standards and ASC 820 under U.S. GAAP—have been in place for over a decade. However, their application has come under unprecedented regulatory scrutiny as market conditions have grown more complex. Both frameworks require entities to measure fair value as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."

The challenge lies not in the conceptual framework but in its practical application, particularly for Level 2 and Level 3 assets where observable market inputs are limited or unavailable. In 2025, approximately 23% of financial assets held by S&P 500 companies were classified as Level 3, representing over $2.8 trillion in reported value. This concentration of hard-to-value assets has made fair value measurement a primary focus for regulators on both sides of the Atlantic.

Key Areas of Regulatory Focus

Recent enforcement actions reveal several consistent themes in regulatory priorities:

Input Selection and Validation: Regulators are scrutinizing whether companies use the most relevant observable inputs and properly validate unobservable inputs used in valuation models
Valuation Methodology Appropriateness: Questions arise when companies apply valuation techniques inconsistent with market participant assumptions or fail to consider all relevant factors
Disclosure Completeness: Both SEC and ESMA have cited inadequate disclosure of valuation techniques, significant unobservable inputs, and sensitivity analyses
Internal Control Deficiencies: Enforcement actions increasingly focus on inadequate governance frameworks and control environments surrounding the fair value measurement process
Independence and Expertise: Regulators expect companies to demonstrate that personnel involved in fair value measurements possess appropriate qualifications and maintain independence from business units

02 SEC Enforcement Actions: Recent Trends and Implications

The SEC's Division of Enforcement has made fair value measurement a strategic priority, with the number of enforcement actions related to valuation issues increasing by 34% in fiscal year 2025 compared to the previous year. The agency has been particularly active in three sectors: financial services, private equity, and technology companies with significant intangible assets.

Case Study: Asset Management Enforcement Action (2025)

In March 2025, the SEC announced a settlement with a mid-sized asset management firm involving $47 million in penalties related to fair value measurement failures in private credit funds. The enforcement action highlighted several critical deficiencies:

The firm had valued portfolio company debt instruments using outdated financial projections that failed to reflect deteriorating credit conditions. Despite receiving updated financial information indicating covenant breaches and declining performance, the firm continued using valuation models based on assumptions from the initial investment date. This resulted in overvaluation of approximately 18% across affected holdings, totaling $340 million in mismarked positions.

The SEC's order emphasized that the firm's valuation committee had failed to establish adequate procedures for updating assumptions, lacked documentation supporting key judgments, and did not maintain sufficient independence from portfolio managers who had incentives to maintain higher valuations. The settlement required the firm to implement comprehensive remediation measures, including:

Appointment of an independent valuation oversight officer reporting directly to the board
Quarterly third-party valuation reviews for all Level 3 assets exceeding $10 million
Enhanced documentation requirements for all significant valuation assumptions and changes
Mandatory annual training for all personnel involved in the valuation process

Technology Sector Focus: Intangible Asset Valuations

The SEC has also intensified scrutiny of technology companies' fair value measurements, particularly concerning acquired intangible assets and goodwill impairment testing. In the second quarter of 2025, the agency issued comment letters to 127 technology companies, representing a 56% increase from the prior year. Common areas of inquiry included:

Discount rate selection for customer relationship intangibles, where the SEC challenged companies using weighted average cost of capital (WACC) without appropriate risk adjustments. In several cases, companies were required to restate financial statements after the SEC determined that discount rates of 12-14% were inappropriate for customer relationships with significant concentration risk and limited contractual terms, where rates of 18-22% would better reflect market participant assumptions.

Revenue forecast assumptions underlying technology asset valuations have also drawn scrutiny. The SEC has challenged companies that failed to reconcile long-term growth assumptions in acquisition-date valuations with subsequent business performance and revised forecasts. In one notable case, a software company was required to recognize a $280 million goodwill impairment charge after the SEC determined that the company's impairment testing used growth assumptions inconsistent with board-approved strategic plans and market conditions.

03 ESMA's Enforcement Priorities and Cross-Border Implications

ESMA has taken an increasingly assertive stance on fair value enforcement, particularly following the market volatility experienced in 2024-2025. The authority's enforcement priorities reflect the unique characteristics of European capital markets, including the prevalence of IFRS reporting and the cross-border nature of many listed entities.

Common Enforcement Findings in Europe

ESMA's 2025 enforcement report, published in January 2026, identified fair value measurement as the second-most common area of enforcement action, accounting for 28% of all enforcement decisions. The report highlighted several recurring deficiencies:

Inadequate Level 3 Disclosures: ESMA found that 41% of reviewed financial statements failed to provide sufficient quantitative information about significant unobservable inputs and their sensitivity to changes in those inputs. This was particularly prevalent among financial institutions with complex derivative positions and private equity firms with portfolio company investments.

The authority emphasized that IFRS 13 paragraph 93 requires disclosure of quantitative information about significant unobservable inputs for Level 3 fair value measurements. Generic statements that "changes in unobservable inputs could result in different fair values" do not satisfy disclosure requirements. Instead, companies must provide specific sensitivity analyses showing the impact of reasonably possible alternative assumptions.

Valuation Technique Inconsistencies: ESMA identified cases where companies changed valuation techniques without adequate disclosure or justification. In the real estate sector, several companies shifted from discounted cash flow methodologies to comparable transaction approaches, resulting in significant valuation increases. ESMA required enhanced disclosure explaining the reasons for methodology changes and reconciliation of the impact on reported values.

Cross-Border Enforcement Coordination

A significant development in 2025-2026 has been enhanced coordination between ESMA and the SEC on cross-border enforcement matters. Companies with dual listings or significant operations in both jurisdictions have faced coordinated inquiries, creating additional compliance complexity.

In September 2025, ESMA and the SEC announced a joint enforcement action against a multinational financial services company for fair value measurement failures affecting both U.S. and European filings. The company had used different valuation methodologies for the same assets in its U.S. GAAP and IFRS financial statements, resulting in a 12% valuation difference for Level 3 assets totaling $1.6 billion. The coordinated settlement required the company to harmonize its valuation approaches and implement consistent global valuation governance frameworks.

04 Industry-Specific Enforcement Patterns

Financial Services: Derivative Valuations and Model Risk

Banks and broker-dealers have faced particularly intense scrutiny regarding derivative valuations and model risk management. The SEC and ESMA have both emphasized that firms must maintain robust model validation processes, including back-testing, sensitivity analysis, and independent review of valuation models.

In the first quarter of 2025, a major European bank received a €35 million penalty from ESMA for inadequate controls over exotic derivative valuations. The enforcement action revealed that the bank's model validation group had identified significant deficiencies in credit valuation adjustment (CVA) models but failed to escalate these findings appropriately. The bank continued using flawed models for over 18 months, resulting in overvaluation of derivative assets by approximately 8%.

The enforcement action emphasized several critical control requirements:

Model validation must be performed by personnel independent from model development and trading functions
Validation findings must be documented, tracked, and escalated to senior management and audit committees
Companies must establish clear timelines for addressing model deficiencies and implement compensating controls when models are known to be inadequate
Back-testing results must be analyzed regularly, with investigation and remediation of significant deviations

Private Equity and Alternative Investments

The alternative investment sector has experienced a surge in enforcement activity, with both regulators focusing on portfolio company valuations and the adequacy of valuation policies and procedures. The SEC's examination priorities for 2025-2026 specifically identify private fund valuations as a key focus area.

Recent enforcement actions have established several important precedents. First, regulators expect private equity firms to obtain contemporaneous third-party valuations for significant investments, particularly when internal valuations show stable or increasing values despite deteriorating operating performance. Second, valuation policies must address potential conflicts of interest, including situations where portfolio managers participate in valuation committees or where compensation is tied to reported fund performance.

A notable 2025 enforcement action involved a private equity firm that failed to write down portfolio company investments despite clear indicators of impairment. The firm had continued using transaction-date multiples for three years post-acquisition, despite significant EBITDA declines and failed refinancing attempts. The SEC determined that the firm's valuation policy, which allowed use of transaction multiples absent "significant changes," was inadequate and inconsistent with fair value principles requiring current market participant assumptions.

05 Best Practices for Compliance and Risk Mitigation

Based on recent enforcement actions and regulatory guidance, companies should implement comprehensive fair value measurement frameworks incorporating the following elements:

Governance and Oversight

Establish a formal valuation governance structure with clear roles, responsibilities, and escalation procedures. Leading practices include:

Formation of a valuation committee with appropriate expertise and independence from business units
Regular reporting to the audit committee on significant valuation matters, methodology changes, and control deficiencies
Documented policies addressing input selection, methodology choice, and approval requirements for significant judgments
Annual assessment of personnel qualifications and training needs

Documentation and Disclosure

Regulators consistently cite inadequate documentation as a primary deficiency. Companies must maintain comprehensive documentation supporting:

Selection of valuation techniques and reasons for any changes in methodology
Identification and validation of significant inputs, including sources and reasonableness assessments
Key assumptions and judgments, with particular attention to unobservable inputs for Level 3 measurements
Consideration of alternative assumptions and sensitivity to changes in significant inputs
Review and approval processes, including identification of reviewers and nature of review performed

Disclosure quality has become a critical enforcement focus. Companies should ensure that fair value disclosures provide meaningful information about:

The valuation techniques and inputs used for Level 2 and Level 3 measurements, including specific quantitative information about significant unobservable inputs and the range of values for those inputs. Generic disclosures that merely repeat the requirements of the accounting standards are insufficient.

Independent Validation and Third-Party Specialists

While not always required, engagement of independent valuation specialists can significantly reduce regulatory risk, particularly for complex or material fair value measurements. When using third-party specialists, companies should:

Evaluate specialist qualifications, independence, and experience with similar assets or liabilities
Provide complete and accurate information to specialists, including all relevant facts and circumstances
Review and challenge specialist assumptions and methodologies, rather than accepting conclusions without critical evaluation
Document the basis for accepting or modifying specialist conclusions

06 Technology and Data Analytics in Fair Value Compliance

The increasing complexity of fair value measurement has driven adoption of specialized technology solutions. In 2025-2026, approximately 67% of large public companies have implemented dedicated valuation platforms or modules within their financial reporting systems. These technologies provide several compliance benefits:

Automated data collection and validation reduce manual errors and improve consistency in input selection. Leading platforms integrate with market data providers, financial planning systems, and transaction databases to ensure valuations reflect current information.

Workflow management and documentation capabilities help companies maintain comprehensive audit trails. Modern systems track all valuation inputs, assumptions, methodologies, and approvals, creating the documentation regulators expect to see during examinations.

Sensitivity analysis and scenario modeling tools enable companies to better understand and disclose the impact of alternative assumptions. Rather than performing manual calculations, companies can quickly generate the quantitative sensitivity disclosures required by IFRS 13 and ASC 820.

Professional platforms like iValuate have emerged as valuable tools for companies seeking to enhance their fair value measurement processes while ensuring regulatory compliance. These solutions combine technical valuation capabilities with governance features designed to address common enforcement findings.

07 Looking Ahead: Emerging Enforcement Priorities

As we move through 2026, several emerging trends are likely to shape the fair value enforcement landscape:

Climate and ESG Considerations

Both the SEC and ESMA have signaled increasing focus on how companies incorporate climate-related and other ESG factors into fair value measurements. As companies begin implementing climate-related disclosure requirements, regulators will scrutinize whether fair value measurements reflect market participant assumptions about climate risks and opportunities.

Early enforcement actions have addressed situations where companies failed to consider climate risks in long-lived asset impairment testing or used cash flow projections inconsistent with stated climate commitments. This trend is expected to accelerate as climate disclosure requirements become mandatory.

Artificial Intelligence and Alternative Data

The growing use of artificial intelligence and alternative data sources in valuation raises new regulatory questions. While these technologies can enhance valuation quality, regulators are concerned about model transparency, validation, and potential bias. Companies using AI-based valuation tools should expect increased scrutiny regarding model governance, testing, and explainability of results.

Digital Assets and Emerging Instruments

Fair value measurement of digital assets, including cryptocurrencies, tokenized securities, and other blockchain-based instruments, remains an evolving area. Recent enforcement actions have addressed inadequate consideration of market liquidity, counterparty risk, and technological risks in digital asset valuations. As these markets mature, regulatory expectations for valuation rigor will continue to increase.

08 Conclusion: Navigating the Heightened Enforcement Environment

The intensification of SEC and ESMA enforcement activity regarding fair value measurement reflects the critical importance of valuation quality to financial reporting integrity. With combined penalties exceeding $420 million in 2025 alone, the financial and reputational consequences of fair value measurement failures have never been more significant.

Companies must recognize that compliance requires more than technical adherence to accounting standards. Regulators expect robust governance frameworks, comprehensive documentation, meaningful disclosures, and a culture that prioritizes accuracy over convenience. The recurring themes in enforcement actions—inadequate controls, insufficient documentation, and incomplete disclosures—are entirely preventable through appropriate investment in people, processes, and technology.

For CFOs and audit committees, the message is clear: fair value measurement deserves the same level of attention and resources as other critical financial reporting areas. This includes ensuring appropriate expertise within the organization, implementing formal governance structures, maintaining comprehensive documentation, and providing meaningful disclosures that enable investors to understand the judgments underlying reported values.

The complexity of modern fair value measurement, combined with heightened regulatory scrutiny, has driven many organizations to adopt specialized technology solutions. Professional platforms like iValuate help companies streamline their valuation processes, maintain comprehensive documentation, and generate the detailed disclosures regulators expect, while reducing the risk of the deficiencies that have led to recent enforcement actions.

As enforcement priorities continue to evolve in response to market developments and emerging risks, companies that invest in robust fair value measurement frameworks will be best positioned to meet regulatory expectations, maintain investor confidence, and avoid the significant costs associated with enforcement actions and restatements. The fair value enforcement landscape of 2025-2026 represents not just a compliance challenge, but an opportunity to enhance the quality and credibility of financial reporting.

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