Valuation is often regarded as the process of ascertaining the value of a business, its ownership interest or a particular asset or liability. It is a key component of investor and corporate activities. In recent times, it has gained prominence due to the following reasons.
Mergers, acquisitions, investments, and divestments activities: Throughout a company’s corporate life cycle, it engages in mergers, acquisitions, investments, and divestments activities with the objective of creating or protecting value for their stakeholders. From its incubation period, to the growth journey it undertakes – and right through to the twilight years – the need for a valuation is evident at all stages of its development.
Fair value measurement in financial reporting: As fair value measurements are anchored within the accounting practice, financial reporting standards relating to business combinations, intangible assets, impairment testing, property, financial instruments etc. are published. These standards provide clarity and lend guidance to the measurement of fair value in the financial reporting process. Valuers’ expertise is sought in this process to either help to conduct valuations for the company or assist the auditor in reviewing valuations performed by the company.
Valuation in legal proceedings: This subject also arises frequently in the legal space, particularly in situations related to shareholders’ disputes or the assessment of damages where valuation principles are called upon. Many issues relating to the valuation process, bases, approaches, methodologies, parameters, and assumptions have been challenged. Increasingly, legal practitioners and parties involved in disputes are engaging valuers to provide expert testimonies in arbitration tribunals and the courts.
Importance of intellectual property in business: With the rise of the knowledge-based economy globally, intellectual property (IP) has evolved as a key driver of many businesses. There is a growing recognition in corporate boardrooms that IP is a strategic asset that has tremendous potential to be unlocked and monetized. This growing significance and importance of IP has led to a need for an objective and unbiased approach with regards to the assessment of its value.
Developments in global valuations
Valuations play a vital role in creating transparent and sustainable markets. There is significant public interest in the work that valuers do especially in relation to financial reporting and capital markets. Valuers need to possess specialized knowledge and skills, and adhere to high standards of ethics and professionalism.
In this regard, the International Valuation Standards Council (IVSC) plays a key role as the global body responsible in developing and setting the International Valuation Standards (IVS), which is being applied by valuers in more than 100 countries currently. The IVS covers the fundamentals of valuation, common valuation principles, application of valuation process and specific standards relating to various classes of assets. At present, the IVSC has a membership base of more than 160 organizations, comprising of valuation professional organizations (VPOs), associate VPOs, institutional, corporate, and academic members, and works to promote and grow the valuation profession worldwide. It engages with partners such as the International Federation of Accountants, the accounting standard setting boards including the International Accounting Standards Board and the International Auditing and Assurance Standards Board, international bodies including the World Bank and United Nations, and regulators globally, including the International Organization of Securities Commissions, to build trust in valuation and help develop the global financial system in the public interest.
The Business Valuation Programme
The Business Valuation Programme will take place from April to June, and aims to provide participants with insights into the valuation of various assets, including an understanding of valuation techniques commonly used for transaction purposes and fair value measurement requirements for financial reporting purposes, and the IVSs. The programme features 11 compulsory and four elective modules (from which participants must choose two) for a total of 24 continuing professional development hours. The programme is designed for users of business valuation reports, including audit professionals, directors of boards, preparers of financial statements, fund managers, and individuals who are keen to gain knowledge in business valuations. Visit the Institute’s website for more information at www.hkicpa.org.hk/bvp
Eric Teo, Senior Consultant, Business Valuation & Advisory, Savills Valuation and Professional Services (S) Pte Ltd., has over 25 years of professional experience working with companies in various industries including government agencies, regulatory agencies, professional bodies, small and medium enterprises, multinational companies and other listed groups. He has also served at various universities as an adjunct associate professor/faculty and visiting fellow, including Nanyang Technological University (Singapore) and Murdoch University (Australia). He is the Chairman of the International Valuation Standards Council Membership and Standards Recognition Board, and the Founding Chairman of the Council of the Institute of Valuers and Appraisers of Singapore.