Exposure Draft
of
Indian Valuation Standard 202
Valuation Report and Documentation

(Last date for Comments: May 12, 2018)

Issued by Valuation Standards Board

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up under an Act of Parliament)

Exposure Draft

Indian Valuation Standard 202 Valuation Report and Documentation

Following is the Exposure Draft of the Indian Valuation Standard 202 Valuation Report and Documentation issued by the Valuation Standards Board of the Institute of Chartered Accountants of India, for comments.

The Board invites comments on any aspect of this Exposure Draft. Comments are most helpful if they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale and, where applicable, provide a suggestion for alternative wording.

Comments can be submitted using one of the following methods, so as to be received not later than May 12, 2018.

1. Electronically: Click on http:https://goo.gl/forms/YogUNqUzrri4hYcd2to submit comments online. (Preferred method)

2. Email: Comments can be sent to [email protected]

3. Postal: Secretary, Valuation Standards Board, The Institute of Chartered Accountants of India, ICAI Bhawan, A- 29, Sector- 62, Noida

Further clarifications on any aspect of this Exposure Draft may be sought by e-mail to [email protected]

Exposure Draft
Indian Valuation Standard 202

Valuation Report and Documentation

CONTENTS PARAGRAPH
OBJECTIVE 1-3
SCOPE 4-6
SIGNIFICANT ELEMENTS 7-9
CONTENTS OF THE VALUATION REPORT 10-35
MANAGEMENT REPRESENTATIONS 36-38
DOCUMENTATION 39-48
EFFECTIVE DATE 49

Exposure Draft

Indian Valuation Standard 202
Valuation Report and Documentation

The Exposure Draft of the Indian Valuation Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles. (This Exposure Draft of the Indian Valuation Standard should be read in the context of Framework for the Preparation of Valuation Report in accordance with the Indian Valuation Standards)

Objective

1. This Standard provides the:

(i) minimum content of the valuation report;

(ii) basis for preparation of the valuation report; and

(iii) basis for maintaining sufficient and appropriate documentation.

2. The objective of this Standard is to prescribe the minimum contents of the valuation report depending upon the nature of the engagement and specify the responsibility of a valuer in preparing the relevant documentation for arriving at a value.

3. The principles enunciated in this Standard shall be applied in conjunction with the principles prescribed and contained in the Framework for the Preparation of Valuation Report in accordance with the Indian Valuation Standards.

Scope

4. A valuer shall follow all requirements of this Standard in preparation of the valuation report.

5. This Standard provides guidance on the documentation to be maintained for the preparation of a valuation report. Relevant valuation documentation that meets the requirements of this Standard provides evidence of the valuer’s basis for arriving at the value and that the valuation was planned and performed in accordance with the relevant Indian Valuation Standards.

6. The contents of the valuation report specified in this Standard are not applicable to the extent a valuer is required to follow the requirements prescribed by any law, regulations, rules or directions of any Government or regulatory authority, or Court order.

Significant Elements

7. The form and content of the valuation report depends on the-

(a) nature of the engagement; and

(b) purpose of the valuation.

8. A valuer shall document matters which are important in providing evidence that the valuation assignment was carried out in accordance with the Indian Valuation Standards and support his assessment or the valuation report submitted by him.

9. A valuer shall prepare the valuation report with due professional care.

Contents of the Valuation Report

10. The contents of the valuation report are selected by the valuer, based on the specifics of the engagement, in particular, the nature of the engagement, and the purpose of valuation.

11. A valuer shall at a minimum include the following in the valuation report:

(a) background information of the asset being valued;

(b) purpose of the valuation and appointing authority;

(c) the identity of the valuer and any other experts involved in the valuation;

(d) disclosure of the valuer’s interest or conflict, if any;

(e) date of appointment, valuation date and date of the valuation report;

(f) inspections and/or investigations undertaken;

(g) nature and sources of the information used or relied upon;

(h) procedures adopted in carrying out valuation and valuation standards followed;

(i) valuation methodology used;

(j) restrictions on use of the valuation report, if any;

(k) major factors that were taken into account during the valuation;

(l) conclusion; and

(m) caveats, limitation and disclaimers to the extent they explain or elucidate the limitations faced by valuer, which shall not be for the purpose of limiting his responsibility for the valuation report.

12. Where a valuer uses the work of an expert during the process of valuation, he shall disclose the identity of such expert and the reliance placed on the valuation report of such expert.

13. A valuer may decide to include the valuation report issued by such expert as an annexure to his valuation report.

14. It is normally presumed by the users of the valuation report that the valuer is independent of the asset to be valued and the client for whom the valuation is being done. Where the valuation is being undertaken for a client and is to be used for the purpose of any transaction or otherwise by another identified specific party at the time of engagement, the valuer shall evaluate independence with reference to the other specific party also.

15. A valuer shall appropriately disclose his interest/conflict of interest, if any, in the assets to be valued in the valuation report.

16. In case where the relevant law prohibits the acceptance of an assignment by a valuer due to the existence of any interest in the asset valued, or any conflict of interest, the valuer shall not accept the valuation engagement.

17. A valuer shall determine the valuation bases for undertaking the valuation of any asset category. These valuation bases describe the fundamental premises on which the value will be based.

18. A valuer shall disclose the valuation bases which are considered in accordance with Indian Valuation Standard 102 Valuation Bases while arriving at the value in the valuation report. The following are examples of the valuation bases which are explained in detail in Indian Valuation Standard 102:

(a) Fair value;

(b) Participants specific value; and

(c) Liquidation value

19. A valuer shall use appropriate valuation approach/ approaches for arriving at the value. Certain valuation approaches which are explained in detail in Indian Valuation Standard 103, Valuation Approaches and Methods are as follows:

(a) Market approach;

(b) Income approach; and

(c) Cost approach.

20. The examples of various methods within these approaches are:

(a) market price method;

(b) comparable companies multiple method;

(c) comparable transaction multiple method;

(d) discounted cash flow method;

(e) relief from royalty method;

(f) multi-period excess earnings method;

(g) with and without method;

(h) option pricing method;

(i) replacement cost method; and

(j) reproduction cost method.

21. A valuer may use a combination of methods and approaches to arrive at the value.

22. A valuer shall disclose the approaches and methods which are considered in accordance with Indian Valuation Standard 103 used in arriving at the value.

23. The valuation assignment concludes with the valuer providing an estimate of value. Such an estimate of value may be an exact number or a range of values.

24. A valuer shall clearly describe the conclusion of value, either as a single amount or a range.

25. In certain cases, the law or regulatory orders may require the valuer to report a specific amount, which may be a number or some other specific unit. In such cases, the valuer shall clearly describe the specific exchange or swap ratio based on the value arrived at.

26. The identity of the valuer shall be clearly mentioned in the valuation report.

27. The valuation report shall include the signature of valuer along with the name of entity (in case an entity is appointed) appointed for the valuation assignment.

28. The signature shall (to the extent applicable) contain the name of the valuer vested with signing authority, entity name, individual and entity’s registration number along with the date and place where the valuation report is signed.

29. A valuer considers various factors while undertaking the valuation. These include assumptions in respect of information received, information not available, as well as information which are not capable of being independently verified.

30. A valuer shall disclose the major factors considered by him in the valuation report to assist the readers to have a complete understanding of the valuation.

31. Valuation analysis and results are specific to the purpose of valuation, the client requirements and the valuation date. The caveats, limitations or disclaimers which are considered while arriving at the value shall be clearly disclosed in the valuation report.

32. A valuer shall exercise reasonable restraint in using caveats while writing the valuation report.

33. Indian Valuation Standards pertaining to certain classes of assets may prescribe additional information to be reported. In such cases, the valuation report shall include such additional information as specified in the relevant Indian Valuation Standard pertaining to such class of assets.

34. A valuer shall indicate in the valuation report the restrictions on the use of the report by or on the
users of the report, as the case may be.

35. In addition to the minimum contents as given above, if the valuer believes that certain additional information will be useful to the user for a better understanding of the valuation, the valuer may include such additional information in the valuation report.

Management Representations

36. A valuer may obtain written representations from the management/client regarding information for performing the valuation assignment. The decision to obtain a representation letter is a matter of judgment by the valuer. A written representation obtained from the management or those charged with governance becomes part of the evidence obtained by the valuer which forms a basis for his valuation report.

37. Wherever a valuer obtains written representations from the management/client regarding information which is the base for the valuation assignment, the valuer shall mention the fact of such representation and the reliance placed on the same.

38. The existence of a management representation letter shall not preclude the valuer from exercising
reasonable skill and care with respect to the information obtained regarding the valuation. The
valuer shall carry required procedures in the performance of his valuation assignment in respect of
the information included in the management representation letter.

Documentation

39. Documentation includes the record of valuation procedures performed, relevant evidence obtained and conclusions that the valuer has reached.

40. A valuer shall maintain documentation which provides:

(a) sufficient and appropriate record of the basis of the valuation report; and

(b) evidence that the valuation assignment was planned and performed in accordance with the Indian Valuation Standards and applicable legal and regulatory requirements, as the case may

41. A valuer shall obtain sufficient and appropriate evidence in arriving at conclusions which form the basis of his valuation report.

42. A valuer shall document the valuation evidence obtained on a timely basis. Documentation shall be prepared at the time the valuation assignment is performed. The extent of documentation is a matter of professional judgement.

43. A valuer shall retain the information obtained, as well as his analyses, assumptions, and workings to arrive at the valuation for a period of time sufficient to meet the needs of applicable legal, regulatory or other professional requirements for records retention. This retention period for valuation documentation is ordinarily not shorter than three years from the date of the valuation report. The valuer may maintain documentation in either physical or electronic format.

44. A valuer shall ensure that the documentation is maintained in a form that is sufficient to enable another professional having no connection with the engagement or a reviewer appointed by any relevant professional body, to review the valuation process and conclusions.

45. The information received and relied upon, as well as analyses thereon differ for every valuation engagement, However, the following documents/information/analyses shall, at the minimum, be documented:

(a) engagement or appointment letter which appoints the valuer to undertake the valuation;

(b) tabulation of data obtained during the course of valuation;

(c) workings undertaken to arrive at the value;

(d) copies of relevant circulars, extracts of legal provisions;

(e) the base/s, approach/es, and method/s, or a combination thereof, used to arrive at the value;

(f) assumptions, a change in which, may materially affect the value;

(g) a copy of the signed valuation report issued; and

(h) management/client representation letter or such communication received, if any.

46. The valuation documentation is not limited to records prepared by the valuer but may include appropriate records such as minutes of meetings, reports issued by other experts, and other independent industry/sector or other such data provided to the valuer by the client, if any.

47. Unless otherwise specified by law or regulation, valuation documentation is the property of the

48. A valuer or his organisation shall establish policies and procedures designed to maintain the confidentiality, safe custody, integrity, accessibility and retrievability of the documentation.

Effective Date

49. Indian Valuation Standard 202 Valuation Report and Documentation, shall be applied for the valuation reports issued on or after , 20181.

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