ICAI Publication- “Valuation: Professionals’ Insight” (Series 2)
With the notification of Section 247 of the Companies Act, 2013 and the Companies (Registered Valuers and Valuation) Rules, 2017, the valuation profession in India is also being regulated and disciplined like other professions through a Regulatory framework.
This profession got statutory status in October, 2017 for the valuations related to the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016. Before this regulatory framework put in place, Valuation practices were not uniform and there were varied perspectives of the valuers, regulators and other stakeholders with regard to valuation. Nevertheless, the important aspects of valuation i.e. trust and confidence of people on valuation remains the same.
Valuation is the most fundamental term during a financing round but is crucial to understand while deriving the value. In this direction, it becomes important to understand the various viewpoints on valuation to make a considered view.
Accordingly, the ‘Valuation Standards Board of ICAI’ and ‘ICAI Registered Valuers Organisation (ICAIRVO)’ have taken joint initiative to bring out the Series-2 of the publication titled “Valuation: Professionals’ Insight” containing the views/ opinion/ in the form of Articles from various valuation professionals, for guidance of the Members.
Basically, this publication is a compilation of diverse valuation topics authored by leaders in the profession. Its purpose is to advance knowledge and understanding of the professional practices. Views expressed in this publication are the views of the authors and are not the views of the ICAI. The purpose of this publication is to provide an overview of the valuation involved in mergers, amalgamation, options, business, case studies by compiling articles.
It may be noted that the ‘ICAI Valuation Standards’ have been made applicable by ICAI for all valuation engagements on mandatory basis under the Companies Act 2013 for members. In respect of Valuation engagements under other Statutes like Income Tax, SEBI, FEMA etc, it will be on recommendatory basis for the members of the ICAI. These Valuation Standards are effective for the valuation reports issued on or after 1st July, 2018.
Index of Contents
1. Rising Domain of Valuation and Emerging Professional Opportunities for Indian CAs…1
2. Distinguishing Features of ICAI Valuation Standards 2018 …15
3. Valuation – Some Basics Relating to Cash Flow and Discount Rate ….22
4. Levels of Value …32
5. Effect of Due Diligence on Valuation – A Practical Perspective ….44
6. Terminal Value – The Elephant in the Valuation ….48
7. Discount Cash Flow Method – Key Considerations ….51
8. Valuations under the Discounted Cash Flows Approach …55
9. Handling Negative Working Capital in the DCF Model ….61
10. Cash Flow Projections – How important it is for Valuation through DCF? …66
11. IND AS 113 – Fair Value Measurement ….70
12. Factors of Valuation ….75
13. Valuation under various Laws …86
14. Regulatory Valuations in India and Professional Opportunities ….93
15. Bias in Valuation ….102
16. Start-Up Valuation …107
17. Start-ups & Valuation ….114
18. Valuation of Fixed Income Securities ….123
19. Valuation of Financial Guarantees – Increasing Complexities under IND AS 109 Decoded ….130
20. ESOP as a Share Based Transaction …139
21. Valuation of Options ….145
22. Purchase Price Allocation ….153
23. Drug Dealings of 2018 – An Overview ….159