A Profession is a disciplined group of individuals who adhere to ethical standards and hold themselves out as and are accepted by the public as possessing special knowledge and skills in a widely recognised body of learning derived from research, education and training at a high level and who are prepared to apply this knowledge and exercise these skills in the interest of others.
History of Valuation as Profession
India has seen the institutionalisation of several market-linked professions in the past, such as Chartered Accountants, Cost Accountants, etc. Just like these professionals, Valuers also perform a very useful function in market-based economies since decade. Valuations are used for a multitude of purposes across the financial system such as company listings, mergers and acquisitions, funds and investment, financial reporting, auditing, secured lending, regulatory compliance, taxation, litigation, insolvency and insurance. However, the valuation profession was not institutionalised or regulated properly.
For long, in the absence of a specialized cadre of valuers, valuation services have been usually provided by chartered accountants and merchant bankers, etc. They typically issue valuation certificates for the purpose of compliance. The lack of a standardized formula has resulted in too much of subjectivity in the valuation of companies.
Globally, there are bodies such as Valuation Standards of American Institute of CPAs; American Society of Appraisers (ASA), Institute of Business Appraisers (IBA), National Association of Certified Valuation Analysts (NACVA) and The Canadian Institute of Chartered Business Valuers (CICBV) regulating the discipline of valuation. However, the generally accepted global valuation practices not followed in India in good spirit and judicial guidance on the subject is limited too.
The International Valuation Standards Council (IVSC) also formed in 1981, responsible for developing the International Valuation Standards (IVS) and acts as the global standard setter for the valuation profession. IVSC works cooperatively with national professional valuation institutes, users and preparers of valuations, governments, regulators and academic bodies to ensure that the public interest is effectively protected and to ensure that valuation issues are properly understood and reflected.
Role of IOV in Valuation in India
Gradually, it was being felt that only a certified valuer is able to provides a specialised service within the industry to perform an independent valuation for clients without conflict of interest. As such, only a certified valuer has the qualifications to undertake comprehensive due diligence and analysis of an extensive range of factors while adhering to governing legislation.
Therefore, to boost the accuracy, professionalism and transparency, Institution of Valuers (IOV) was founded by Shri P. C. Goel, “Father of Indian Valuers” in the year 1968. It is the only national organization of valuation professionals in India specialized in various disciplines who serves recommendations on valuation procedures and related disputes to governmental as well as non-governmental organizations and develops standards in asset valuation.
IOV brings into its fold valuers of immovable property, agricultural lands, coffee estates, stocks, shares and debentures of companies, shares of a partner in a partnership, business assets including goodwill, jewellery, precious stones and ornaments, works of art, life interest reversions and interests’ expectancy, tea estates, standing forests, mines and quarries, machinery, electrical equipment, industry etc.
IOV stands amongst the top five valuers’ association of the world with more than 30,000 registered valuation professionals. It imparts professional education to the aspirants as well as the persons already engaged in the valuation business through Professional Education Courses, Seminars and conferences. IOV ensures updating and development of technical and professional knowledge of fellow members. Also, IOV represents and interacts with all concerned local, Government and other statutory authorities to define suitable norms for the responsibilities of valuation practitioners and seek redressal of their grievance, if any.
To raise standards of international valuation practice among the registered valuers and to create awareness regarding the proper and timely adoption of IVS, IOV has become member of IVSC Advisory Forum Working Group, where only four organisations from India are members of the council.
Regulations to make mandatory provisions for Valuation
The stricter need to regulate Valuation profession arose when stressed companies worth thousands of crores are up for sale under the Insolvency and Bankruptcy Code (IBC) and there is no standardised formula for valuing these assets nor is there a proper regulatory framework governing the valuation profession. Moreover, it has been observed that in the past couple of years, shareholders have moved SEBI for not being remunerated with a fair price by promoters as part of the delisting or exit process.
The introduction of the concept of Registered Valuer in the Companies Act, 2013 led to the setting up of Indian Valuation Standards that improve the transparency and governance. The Ministry of Corporate Affairs (MCA) of India introduced Clause 247 into the Act in late 2017, introducing the requirement for a Registered Valuer (RV) for all valuations to be carried out under the Act 2013. The government has designated the Insolvency and Bankruptcy Board of India (IBBI) as the authority to implement the new regime of registered valuers.
Recognising the need to have the consistent, uniform and transparent valuation policies and harmonise the diverse practices in use in India, the Institute of Chartered Accountants of India (ICAI) in 2018 has also issued the Valuation Standards which are 1st of its kind in India. With a vision to promote best practices in this niche area of practice, the Standards lay down a framework for the chartered accountants to ensure uniformity in approach and quality of valuation output.
With effect from February 1, 2019, all valuations required under the Companies Act 2013 and the Insolvency and Bankruptcy Code (IBC), 2016 are mandatorily required to be conducted through registered valuers.
To develop the valuation profession of the Registered Valuers and promote the motive of IBBI, IOV Registered Valuers Foundation was set up by IOV as recognised Registered Valuers Organisation under IBBI to certify valuation professionals in three classes of assets viz, land & building, plant & machinery and securities & financial assets.
Soon, IOVRVF become the largest, prestigious and most engaging valuation association with the aim to provide structured valuation education and training to bring in ‘valuation discipline’ in the overall hierarchy of valuation. Today, IOVRVF has more than 1700 registered valuers, out of total 4300 valuers registered with IBBI.
Evolution of Valuation Profession
We must say that valuation is being evolved in India rapidly and the professional judgment of a valuer is taken critical in any valuation exercise. The concept of a registered valuer has not only broadened the concept to be valuers in India for graduates and post graduates with respective number of years’ experience but also shows major impact on the industry, professionals, shareholders and government as follows: –
- The increase in requirements for valuation lead to a substantial increase in professional opportunities for individuals.
- Fine for misleading and incorrect information and imprisonment for intention to defraud a company or its members ensure that valuation reports disclose a true, fair and complete view and that valuation procedures are more objective.
- Stakeholder confidence boosted with the increased transparency and fairness in the valuation system.
- Government revenues improve as loopholes in valuations are being plugged.
With the regulation in place, valuers have also continued to grow in professionalism and skill and the valuation process continues to become more rigorous. Today, the valuation profession can be seen to have made great advances. It is clear that valuers will need to be more alert to and take account of new expectations and requirements of clients as well as new and more sophisticated factors influencing markets in order to stay relevant.
Areas of Improvement
However, for many companies, the requirement of valuation is covered not just by the Companies Act but also by FEMA (Foreign Exchange Management Act, 1999), Income Tax Act 1961, SEBI guidelines and/or international tax requirements. Multiple factors determine the applicability of these statutes, including nature of company, type of buyer and seller, resident status of buyer/seller and type of transaction.
Currently, there are only 16 Registered Valuer Organisations and 43 registered valuer entities under IBBI to carry out valuations under different legal framework. Nevertheless, the other laws are soon expected to be amended to include the Registered Valuers to carry out Valuations.
Future of Valuation
With better access to information over the next 10-20 years, valuer’s role can be seen of becoming more of a desk-bound, sense-check position. The role will evolve quickly and will lean towards the higher value, more complex properties and become similar to an auditor. As we see surveyors and valuers evolving into data science or client management specialists, their daily routine in future may involve both the interpretation and in-depth analysis of the latest data regarding a portfolio or an individual building, before presenting it to a client and advising them on asset management strategy.
Author Bio
