IDW S1: The Objectified Company Value and Its Limits

IDW S1 is the standard "Principles for the Performance of Company Valuations" of the Institute of Public Auditors (IDW) in Germany. It describes how auditors determine the value of a company. It is not binding law. In practice and before German courts, however, it is the recognised benchmark.

What IDW S1 governs

The standard sets the methodology and procedure, not a fixed result. It defines which cash flows are relevant, how they are to be forecast and at what rate they are to be discounted. The goal is verifiability: two experts working the same engagement with the same assumptions should reach comparable results.

Central is the separation by valuation purpose. IDW S1 distinguishes whether a neutral value for third parties is required or a price limit for a specific party.

The objectified company value

The objectified value is the core concept of IDW S1. It is the value the company has, on continuation of the existing concept and with the existing management, for a typified shareholder. Personal circumstances of individual parties are left out. The value is meant to be free of one-sided interests.

That is why it is required for occasions that need a neutral basis: settlements in corporate-law measures, squeeze-outs of minority shareholders, mergers, and inheritance and family-law disputes. In these cases the value serves as a reference for a settlement, not as a negotiating position.

Earnings value and DCF under IDW S1

IDW S1 recognises two equivalent methods that, given the same assumptions, lead to the same result:

The earnings-value method discounts the future financial surpluses flowing to the owners back to the valuation date. The capitalisation rate reflects the return on a comparable alternative investment, adjusted for the risk of the company.

The DCF method (discounted cash flow) discounts cash flows, usually in the entity variant via the WACC (weighted average cost of capital). Both methods are future-oriented. The asset value — the mere sum of the assets — is not an independent value but at most a lower limit.

Objectified value and decision value compared

The objectified value is not the only concept of value. Facing it is the subjective decision value.

Feature	Objectified value	Subjective decision value
Perspective	typified, neutral shareholder	specific party (buyer or seller)
Considers individual effects	no	yes (financing, taxes, own effects)
Function	neutral reference, settlement	price ceiling or floor
Typical occasion	squeeze-out, settlement, dispute	purchase, sale, negotiation

For a transaction the decision value counts, not the objectified value. A seller wants to know the maximum a particular buyer can pay. How this framework can be formed is covered in our company valuation and in the article what is my company worth.

The Austrian view: KFS/BW 1

The counterpart to IDW S1 in Austria is the expert opinion KFS/BW 1 of the Chamber of Tax Advisers and Auditors. It follows the same basic logic: future orientation, earnings value and DCF, an objectified value as a neutral benchmark.

One recent change should be noted. The revised KFS/BW 1 (2025) was adopted on 6 November 2025 and is binding for engagements accepted from 30 June 2026; earlier voluntary application was possible. What is new is that, alongside the objectified value and the arbitration value, two further value benchmarks were introduced: the market value and the typified subjective company value. Austria thus departs in one point from the previously largely shared view. The objectified value was at the same time defined more narrowly.

For cross-border cases in the DACH region this means: the applicable standard depends on the seat and the occasion. For tax and corporate-law questions, involve a tax adviser or auditor. This article frames the topic; it does not replace advice in the individual case.

Frequently asked questions

Is IDW S1 legally mandatory?

No. IDW S1 is a professional standard, not a law. In court and expert practice in Germany, however, it is regarded as the recognised benchmark, especially in settlement and squeeze-out cases.

What is the difference between IDW S1 and KFS/BW 1?

IDW S1 applies in Germany, KFS/BW 1 in Austria. The methodology is similar. Since the 2025 revision, KFS/BW 1 additionally recognises the market value and the typified subjective value, which distinguishes the standard from the German approach in details.

Does IDW S1 deliver the price I achieve on a sale?

No. The objectified value under IDW S1 is a neutral reference value. The actual purchase price arises in the negotiation and depends on the decision value of the specific buyer, which can be higher or lower.

Earnings value or DCF, which method is better?

Both are equivalent under IDW S1 and lead, with identical assumptions, to the same result. The choice depends on the data situation and what is customary in the respective context, not on any substantive superiority.

When do I actually need an IDW S1 report?

Above all for occasions requiring a neutral value basis: squeeze-out, settlements, mergers, corporate-law or inheritance disputes. For a pure sale preparation, such a report is often not the right approach.