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Public Interest

Valuation Reports – Bringing Transparency,

Reliability and Authenticity
The Valuation standards 3. ICAI Valuation
The field of valuation help to increase the level of Standard 103 –
has gained immense professional ethics and trust by Valuation Approaches
prominence over time, bringing standardization in the and Methods
with great emphasis valuation practices and also aid
being placed on the government to take various 4. ICAI Valuation
Standard 201 – Scope
transparency, reliability regulatory measures. The ICAI
Valuation Standards 2018 have of Work, Analyses and
and authenticity of Evaluations
valuation reports with been formulated on the basis
of Fair Value principles as per 5. ICAI Valuation
valuation process being
Ind AS 113 as notified by the Standard 202 – Report
made more codified and Ministry of Corporate Affairs, and Documentation
scientific. The Companies after holistically evaluating
(Registered Valuers the valuation purposes, Indian 6. ICAI Valuation
and Valuation) Rules, legal and business environment Standard 301 –
2017 (Rules) provide a and the best practices being Business Valuation
comprehensive framework followed globally. The ICAI 7. ICAI Valuation
for the development and Valuation Standards, consistent Standard 302 –
with the approach followed for
regulation of the valuation Intangible Assets
other professional standards,
profession. The Rules set have been formulated as follows: 8. ICAI Valuation
standards for professional Standard 303 –
conduct and performance 1. ICAI Valuation Standard Financial Instruments
of robust valuations in the 101 – Definitions
These standards have to be
interest of stakeholders 2. ICAI Valuation Standard applied by reading it together
and the society at large. 102 – Valuation Bases with the:
To take forward the
regulatory emphasis on
valuation profession and
to harmonise the diverse
practices in use in India
the ICAI has issued the
ICAI Valuation Standards
in 2018, after detailed
study of best practices
across the globe for
valuation of Securities or
Financial assets which are
first of its kind in India.
Read on…

Contributed by Secretariat, Valuation Standards Board of ICAI. They can be reached at eboard@icai.in.

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— Preface to the ICAI essentially in context of fair
Valuation Standards. value requirements of Ind
AS Financial Statements.
— Framework for the Standards have been
Preparation of Valuation Market Value
Report in accordance formulated considering
with the ICAI Valuation ICAI Valuation Standard the Fair Value principles
Standards. 102 defines Market Value
in detail as per Ind AS as per Ind AS 113 as
Applicability of Valuation
Standards:
113 principles. Income notified by the Ministry of
tax/ SEBI/ Companies
These ICAI Valuation Standards Act/ FEMA regulations/ Corporate Affairs.
have been made applicable Accounting standards
for all valuation engagements usually use terminology of
on mandatory basis under the ‘Fair Value’. Other basis of Value
Companies Act 2013. In respect While the underlying Other basis of Value
of Valuation engagements under valuation principles of (IFRS/ OECD/ US IRS,
other Statutes like Income Tax, Market Value and Fair etc) need to be customised
SEBI, FEMA etc., it will be value (as per the valuation to specifically include
on recommendatory basis for principles/ standards) are Indian tax/ regulatory
the members of the Institute. similar, use of a different requirements (eg valuation
These Valuation Standards terminology may create carried out based on
are effective for the valuation misunderstanding to users. formula prescribed in SEBI/
reports issued on or after 1st However, Para 19 of ICAI Income tax regulations)
July, 2018. Valuation Standard 102 as per Para 7 of ICAI
Distinguishing features of allows to have market value Valuation Standard 102.
ICAI Valuation Standards separately from Fair Value,
Equitable Value/
2018 if circumstances require.
Investment Value/
Market Rent Synergistic Value
1. ICAI Valuation Standards
2018 are known widely ICAI Valuation Standard Equitable Value/ Investment
and available easily and the do not provide for the Value/ Synergistic Value
same can be communicated, definition of Market Rent as basis considers Participant
applied, monitored and the ICAI Standards are for specific perspective. Use of
enforced by the various Valuation of Securities or multiple basis of value may
stakeholders in valuation. Financial Assets. create misunderstanding
Principles adopted by the amongst users. Therefore,
ICAI Valuation Standards Relative Value ICAI valuation Standards
are globally accepted have not defined these
As Per Para 8 of ICAI
(subject to a few changes values.
Valuation Standards 102;
from Indian perspective).
Valuation for determination Highest and best use
2. Standards have been of share exchange ratio/
ICAI Valuation Standard
formulated considering share entitlement ratio in
102 under para 39 to 48
the Fair Value principles the case of amalgamation/
provides detailed guidance
as per Ind AS 113 as mergers/ demerger are
on Highest and Best Use.
notified by the Ministry of usually based on Relative
Corporate Affairs as the Value, which is an accepted An entity’s current use
requirements for valuation concept based on past of a non-financial asset
under Companies Act is judicial precedents in India may be presumed to be its

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highest and best use unless 6. Determination of DLOM 11. ICAI Valuation Standards
market or other factors & DLOC under Market specifically provide to
suggest that a different Approach include the valuer’s
use by participants would signature along with
maximise the value of the As per Para 38- 48, of ICAI his identity and other
asset. Also, in certain cases, Valuation Standard 103, details. This helps in fixing
assessment of highest DLOMs and DLOCs may be responsibility for the
and best use may involve applied on the professional contents of a valuation
considerable subjectivity/ judgement of the valuer report.
technical assessment and considering the factors
such as size and nature, 12. The ICAI Valuation
the Valuer may base his
amount/extent of control, Standard 202 on ‘Valuation
evaluation considering Report and Documentation’
inter-alia relevant inputs time and cost associated
with marketing, restrictions is very comprehensive than
from the client, information the International Standards.
available in public domain. on transfer of subject
asset, etc. Due to lack of There are many important
ICAI Valuation Standard empirical Data specific aspects which are included
102 provides for the to Indian markets, it is in the ICAI Valuation
definition of Market believed that it should be Standards. A summary
participants as per Ind AS left to the judgement of the of such aspects is set out
113 in para 24. professionals. below:
i. Contents of the
3. Para 58 to 60 of ICAI 7. Under ICAI Valuation
valuation report: Para
Valuation Standard 102 Standard 103, DLOM and
10 to Para 35 of ICAI
also defines integration DLOC need to be applied
Valuation Standard
cost to be part of Specific under Income approach
202 provides detailed
Considerations. while valuing illiquid
guidance on Contents
securities and minority
4. Fairness opinion as required of Valuation Report.
interest, which is believed to
under SEBI Guidelines has be more appropriate in such ii. Independence of
been provided. cases. the valuer: Since the
5. Internationally Market independence of the
8. Format of Report has been
Price of traded assets has provided.
been covered as one of the
valuation method under 9. Specific guidance has been
Market Approach in ICAI provided for Subsequent An entity’s current use
Valuation Standard 103. Events.
of a non-financial asset
Under ICAI Valuation 10. It has been specifically may be presumed to
Standards the same has provided that the valuer
been captured in Para has to disclose the identity be its highest and best
18-20. It is believed that of the expert along with use unless market or
Market Price is very the reliance placed on
important method in such expert’s report. This other factors suggest
Market Approach as in is pertinent since, in many that a different use
many Regulations such cases, the valuer may
as SEBI Regulations, appoint another expert
by participants would
Income Tax Act, FEMA, to undertake valuation of maximise the value of the
etc. suggests usage of this specialised asset types like asset.
method. financial instruments, etc.

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expert along with the vi. Management
reliance placed on such representations:
expert’s report. This Since a lot of
ICAI Valuation Standards is pertinent since, in information provided
specifically provide to many cases, the valuer by management is
may appoint another used in undertaking
include the valuer’s expert to undertake valuation, separate
signature along with his valuation of specialised paragraphs have been
included in the ICAI
identity and other details. asset types like financial
Valuation Standard
instruments, etc.
This helps in fixing 202 (Para 36 to 38) on
iv. Disclosure about
responsibility for the conflict of interest:
accepting management
representations and
contents of a valuation Conflict of interest / extent of placing
report. perceived conflict of reliance on them.
interest is an important
vii. Documentation: Since
impediment in reliance
valuer is an important documentation is the
placed on valuation
aspect determining only way of ascertaining
reports. In case such
the reliability of the the quality and extent of
conflict of interest is
valuation report, procedures carried out
not disclosed, there
the ICAI Valuation by the valuer, the ICAI
could be significant Valuation Standard
Standard 202 provides
misrepresentation. 202 provided detailed
specific guidance
(paragraph 14) that Para 15 of the ICAI guidance on how and
the valuer shall be Valuation Standard what to document in
independent of the 202 requires a valuer para 39 to 48.
asset as well as the to disclose conflict
client for whom the of interest. Further, Detailed guidance on
valuation is being ICAI Valuation maintenance of records has
undertaken. Further, Standards prohibit been provided in compliance
the ICAI Valuation the acceptance of a with the Companies Act, 2013
Standard also states valuation assignment which provides for maintenance
that the valuer should in case of any conflict of records for a period of 8
be independent of the of interest, where local years.
user of a valuation laws prohibit such 13. ICAI Valuation Standard
report, where the acceptance. 103 encourages use
valuation assignment is of multiple method/
commissioned by one v. Signature on the
valuation report: Para approaches
party but the report is
intended to be relied on 27 and 28 of ICAI ICAI Valuation Standard
by another user. Valuation Standard 202 103 encourages use
requires the valuer to of multiple method/
iii. Reliance on use of specifically include the approaches for valuation in
experts: Paragraph valuer’s signature along such instances to produce
12 of the ICAI with his identity and a reliable indication of
Valuation Standard 202 other details. This helps value. It is believed that
specifically requires in fixing responsibility usage of multiple method
the valuer to disclose for the contents of a gives greater comfort on
the identity of the
valuation report. outcome as all aspects

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(Income/Multiples, etc) is not permit Valuers to be
looked at while finalising party to such projections.
the valuation. As compared Under ICAI Valuation
to single method usage of Standard 103 in para 65, ICAI valuation Standards
multiple methods gives the valuer is required provides option for usage
a better comfort. The to undertake analysis of
Standard also provides projections to assess risk of multiple valuation
that if the difference in inherent in its achievability. methods. It has been
the values under different
approaches/ methods
16. Detailed guidance has been left to the Valuer’s
provided on Analyses and
is material, the valuer
Evaluation of asset to be
discretion to use one or
need to consider certain
factors given in paragraph
valued. It has been provided multiple methods and
that Analyses of asset to
10 to consider whether
be valued is based on the
give weightages. It is well
the approach/method established by Indian
following information:
considered is appropriate or
not. — non-financial judiciary that multiple
information
ICAI valuation Standards — ownership information
methods and weighting
provides option for usage of
— financial information; same, are considered to
multiple valuation methods.
It has been left to the
and be a better approximation
— general information
Valuer’s discretion to use of fair value in many
one or multiple methods The valuation Standards provide
and give weightages. It is principles and detailed guidance cases rather than a single
well established by Indian and are user friendly for Indian method value.
judiciary that multiple Valuers. The Standards are
methods and weighting adopted by ICAI Registered
same, are considered to be Valuers Organisation in as specified in the said Rules,
a better approximation of response to the local needs and Code of Conduct of Registered
fair value in many cases conditions after notifications Valuers.
rather than a single method of Companies (Registered Furthermore, the Insolvency
value. The erstwhile CCI Valuers and Valuation) Rules, and Bankruptcy Board of
valuation guidelines, the 2017 and it is mandatory for India (“IBBI”) has also issued
FDI valuation guidelines, the Registered valuers enrolled guidelines on aspects of
Income tax valuation with ICAI RVO to follow ICAI valuation report such as caveats,
guidelines, etc., recognise Valuation Standards, 2018 limitations and disclaimers.
multiple method valuation and ICAI Council has made
and appropriate weighting it recommendatory for the Valuation reports:
or establishing a range. chartered accountants to follow Structure and Content as
ICAI Valuation Standards 2018 per guidelines by IBBI
14. Detailed paras on Scope
as of now. As we all know that Valuation
of Work and Terms of
Engagement Letter have The Valuers will find it useful as as a process concerns the
been given. the ICAI Valuation Standards community of shareholders and
2018 complies with the society at large. It is imperative
15. ICAI Valuation Standards to address issues surrounding
requirements of Companies
do not recommend
(Registered Valuers and valuations in a market which is
preparation of cash flows as
Valuation) Rules, 2017. For presently low in confidence on
certain professional bodies
example provides minimum the quality of the work. Usually,
governing the valuers do
content of the Valuation Report a valuation is required in the

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context of: carry a disclaimer, which has for the purpose of the valuation.
— Transaction – the potential to dilute the Where due to such limitation,
acquisition, disposal, responsibility of the Registered the RV is unable to carry out
merger, amalgamation; Valuer or make the valuation the valuation in accordance
unsuitable for the purpose with the normal approach
— Internal Decision to valuation; the valuation
for which the valuation was
making/Corporate report shall be modified with a
conducted. However, the
Governance; paragraph setting out the nature
scope of “caveats, limitations
— Regulatory Compliance and disclaimers” is not clear to of circumstances that are giving
– Companies Act ,SEBI everyone, including users and rise to the limitation.
Regulations, Income RVs, and consequently, the RVs
Tax, Wealth Tax, A few events in the recent past
are having different practices have highlighted the public/
FEMA; in presentation of caveats, shareholder concerns associated
— Fund Mobilization – limitations and disclaimers in with valuation. Debt and equity
both equity and debt; valuation reports. fund providers have been
and With a view to provide guidance active in initiating enquiries
— Disputes. to the Registered Valuers in the into valuations submitted by
use of Caveats, Limitations, companies for mobilizing funds
Several events in recent past
and Disclaimers in the interest and restructuring. Regulators
have transpired to provide an
of credibility of the valuation have also been raising questions
indication of the public concern
reports, the Insolvency and on the valuations submitted
on valuation and the impact
Bankruptcy Board of India in the context of transactions
on shareholders and other entailing purchase/sale, income
stakeholders. Fund Providers, has issued Guidelines on Use
of Caveats, Limitations and tax, fund mobilization and
both equity and debt, have been corporate restructurings. In
active in asking for enquiries Disclaimers by the Registered
Valuers in Valuation Reports in this context, the importance
into valuations submitted by of a detailed, transparent and
companies for mobilizing funds September, 2020.
wholistic valuation report is
and restructuring. Regulators Need for issuance of equally critical for valuation
have also been raising questions Guidelines practitioners, clients and
on the valuations submitted regulatory authorities.
in the context of transactions Variance in valuation done by
entailing purchase/sale, income different Registered Valuers In this light, there are certain
tax, fund mobilization and is often observed even when key elements of a valuation
corporate restructurings. the purposes as also the report that should be included
circumstances in which the at a minimum. These key
Further, as per Rule 8 of valuation is undertaken are the element with a salient points
the Companies (Registered same. In such a situation, the associated with them are as
Valuers and Valuation) Rules, market may question the ability follows:
2017 mandates that the of the RVs and the integrity of
Registered Valuers (RVs) shall the valuation process. i. Background information:
state “caveats, limitations The aim is to provide the
This is not in the interest of unfamiliar and familiar
and disclaimers” to the extent
the stakeholders where crucial reader alike, with the
they explain or elucidate
economic and commercial particulars of the company,
the limitations faced by
decisions are taken on the business, assets/liabilities
valuer, which shall not be for
basis of the valuation reports. that form the subject
the purpose of limiting his
There may be a limitation, in of the valuation with as
responsibility for the valuation
case the Registered Valuer much context as required
report.
is unable to obtain sufficient to gain an accurate
This Rule aims to ensure that information and explanations understanding of the
a valuation report does not which are considered necessary assignment. Transaction

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details, summary of As such, the valuer should publicly available sources
historical financials, capital disclose in his/her report, of data example: NSE, BSE
structure, identification possible sources of conflict websites, frequently used
of pertinent facts such as and material interests, third party databases such
related party issues, changes including association or as Bloomberg, Capitaline,
in shareholding pattern, proposed association/ CapitalIQ etc. Valuation
impact of restructuring or with the company, its professionals should make
proposed transaction etc. associates, the counter- the effort to accurately state
typically form part of this party to the transaction or which sources have been
section. its associates, in the form relied upon and to what
of auditor, lead advisor extent such information
ii. Purpose of Valuation and
or in any other capacity, been incorporated into the
Appointing Authority:
The context and purpose together with the nature valuation.
of the valuation and the of the fee arrangements
for the valuation services vii. Procedures adopted
appointing authority in carrying out a
commissioning the exercise undertaken.
valuation: Procedures
must be clearly stated e.g., v. Date of appointment, adopted in carrying out a
the Management’s decision valuation date and date valuation may vary with
to seek an advisory opinion of the report: Valuation circumstances, nature and
should be disclosed, or assignments are performed purpose of valuation as well
the Audit Committee’s as of a particular point as information and time
decision to appoint or in time. As such, clearly available. The principal
the appointment of an stating the Valuation Date procedures actually adopted
independent valuer itself i.e. the date as of which by the valuer in carrying
should be disclosed. As part the valuation analysis has out the valuation should be
of this section of the report, been performed is very set out in the report. Such
valuers should also state the important. Furthermore, procedures may typically
“premise of value”. the date of the appointment include:
iii. Identity of the valuer of the valuer as we well — Review and analysis of
and any other experts as the date on which the Historical and Projected
involved: Identity of the report has been issued Financials;
Valuer (with his registration should also be included.
Furthermore, the Report — Industry and SWOT
number) as well as the Analysis;
organization performing the should also mention the
timeline associated with the — Comparison with
valuation and other team
members/external experts validity of the report and/or similar transactions
consulted in the process within which the user must and other similar listed
of valuation should be accept or reject the report. companies;
disclosed. — Discussions with
vi. Sources of information: Management;
iv. Disclosure of Valuer Principal sources of
— Review of principal
Interest/Conflict, if information that form
agreements/documents
any: This section of the the basis of the valuation
report should be clearly etc.
report is key in ensuring
transparency and as such listed. This typically — Site visit (external,
valuers should clearly includes information such internal or both) or
disclose any facts that are as company financials desktop valuation.
relevant and may lead to and projections that are — Assignment specific
a conflict or perceived provided by management assumptions must be
conflict of interest while as well as other sources explicitly stated i.e.
performing the analysis. such as analyst reports, in case of a desktop

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valuation a valuer and appropriateness for of the report. For example,
must state that the the adoption of a particular in the preparation of
basis of the report is valuation methodology or a valuation report, the
photographs provided, combination of methods in valuer should not disclaim
documents provided the context of the valuation liability for their expertise
and secondary research of a business or asset should or duty of care. However,
only. be clearly justified. The an independent valuer will
— Process of site report should disclose the prepare the report based
identification, i.e., rationale for exclusion of a on information and records
self-identified or with valuation methodology. provided by management.
the help of clients ix. Major factors influencing The independent
representative or client the Valuation: Key material valuer can disclaim the
itself. factors including inter reliability of management
alia the size or number provided projections and
A valuer’s report should
of the corporate assets or may disagree with the
also include an affirmative
shares, their materiality projections if they are
statement that information
or significance, minority conjectural or fantastic or
provided and assumptions
or majority holding and bordering on the unreal. An
used by Management/Others
changes on account of the independent valuer has the
in developing projections have
transaction, any impacts right to demand relevant
been appropriately reviewed,
on controlling interest, information and basis of
enquiries made regarding
diminution or augmentation the projections before
the basis of key assumptions
therein and marketability commenting thereon.
in context of the historical
or lack thereof; prevailing The components
performance of the business
market conditions and highlighted are not
being valued and comparable
government policy in the exhaustive and the valuer
industry/economy indicators.
specified industry should will continually need to
An affirmative statement
be described in the report. apply care and discretion
on adequacy of information
Here it will be relevant to to ensure that a valuation
and time for carrying out
mention that disclosure report is comprehensive
the valuations should also be
of projected financial and defensible if subjected
included.
information should be done to scrutiny.
It is important to note that such taking into consideration
affirmative statements shall aspects of confidentiality, Endnote
not negate the professional regulatory requirements, The ICAI has issued ICAI
liability for expertise applied purpose of valuation, Valuation Standards 2018 with
in determining value and potential of misuse by users a view to have uniformity and
if the degree of inadequacy and competitors. transparency and furthermore
of information is severe, x. Conclusion followed by the Government has issued
fundamental questions and Caveats, Limitations and Guidelines on Caveats,
information as assessed by the Disclaimers: Caveats, Limitations and Disclaimers so
valuer as key for the valuation limitations and disclaimers that the responsibility is taken
needs to be disclosed. should be clearly stated, by the Valuers for the Reports
viii. Valuation Methodology: often in a separate section and unnecessary disclaimers are
The valuation methodology of the report and serve to not being made and the report
adopted by the valuer, inform the reader of the must contain a clear statement
which includes various caveats associated with of the value ascribed, including
methods under the the valuation and help the Valuation Date, the Premise
Income, Market and Cost them assess the impact of Value, the valuation methods
Approaches has to be of these clauses on the relied upon and appropriate
disclosed. The rationale credibility and reliability weightage placed on each. 

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