Valuation refers to calculation of value of business/ underlying asset / liabilities of entity. One of key factors which drives valuation process is purpose. The Valuation approach will depend on the purpose for which the valuation is done. E.g. Practically the approach followed for Valuation of Inventory for the purpose of submission of Stock Statement to Bank will be different from the approach followed for same asset for the purpose of submission to Income Tax Authority, isn’t it ?
Similarly the approach followed for valuation for merger will definitely depend upon which side is doing evaluation. That’s why the Valuation is always dynamic, it changes according to situation, side, scenario and most importantly time.
The purposes can be broadly segregated in two parts i.e. Statutory and non-statutory.
Non Statutory purposes will include the valuations carried out for various business deals or may be for self-assessment, These Valuations are carried out to aid business take certain decisions. The valuation assessment is done mainly to know what value the business/ asset/ liability would fetch in order decide future course of action. These valuations are done purely on voluntary basis and not as requirement of any law. The professional who is having adequate knowledge of subject Valuation and having experience in carrying out Valuations would be preferred choice. Although not mandatory, the Professional having competency, experience and credentials in valuation would be best fit.
Statutory Purpose includes the valuations carried out in order to adhere to laws of the land. In country like India there are so many laws which requires valuation. However there was no single professionals which were given authority to do valuations. Different laws which came in force different times has prescribed different set of professionals who can carry out and certify Valuation. Professional recognized to certify valuations under different Act/ Rules / Regulations are shown below in matrix format :
|Sr||Particulars||Registered Valuer (RV)||Merchant Banker (MB)||Chartered Accountant (CA)||Cost Accountant (CMA)|
|1||Companies Act, 2013||
|2||Income Tax Act, 1961||
|4||SEBI Laws *||√||√||×||
* SEBI Laws includes many rules & regulations which prescribes Merchant banker to carry out valuation, however recently those are amended to recognize Registered Valuer (as per companies Act 2013).
It may be noted that no professional has been vested with authority wrt all laws. Hence that brings lot of redundancy and add to costs of business. E.g. If Company wants to issue further shares to Investor located outside India at premium it may have to get the valuation done for 3 different purpose. One for Companies Act, second FEMA & third Income Tax. In such scenario, the entity may have to get valuation done of same thing form may be two or three different professionals. Further the values calculated by these professionals may also vary as the valuations involve subjectivity and professional judgement.
To avoid this Government should come out with amendments in the laws in order to bring the uniformity, avoid duplication of work and save time & costs of business.
Who should be preferred choice ?
When the different laws were enacted there was no separate professional who was recognized as Valuer. Hence being no other choice the authority was entrusted to professional like CA, CMA or Merchant Banker. If you look at the curriculum of these qualifications although the subject of Valuation may have been covered in their syllabi, the focus is something different. These qualification were not carved to engage the professionals to be become valuer.
Whereas since enactment of Companies Act 2013 followed by notifying the Companies (Registered Valuers and Valuation) Rules, 2017, there not professional available who is focused only to carry out Valuation i.e. Registered valuer.
Naturally given the preferred choice is available now. The Government should amend the provisions of other acts to enable Registered Valuer to attest the valuations in all laws.
The alignment process has already been initiated by recognizing Registered valuer in other laws like Insolvency & Bankruptcy Code 2016 & SEBI Regulations (REIT & INVIT).
This would one more steps taken by Govt in order to prove EODS (Ease of doing Business) ranking.
Government should recognize the Registered Valuer for Income Tax, FEMA, SEBI and all enactments wherever the valuation is required at the earliest. Commerce & Industry will welcome this change which will bring more consistency, professionalism, avaoid redundancies and cost effective.
By Harshad Deshpande,
M.com, FCMA, CS, CISA(USA), CIMA(UK), IP, RV
Registered Valuer & Insolvency Professional
Author can be reached on Linkedin , Facebook, Skype & firstname.lastname@example.org