THERE ARE QUITE A FEW REGULATORY SPACES WHICH NEEDS TO BE KEPT IN CONSIDERATION WHILE MAKING THE REPORT. IN THIS ARTICLE WE SHALL DISCUSS REGARDING DRAFTING AND THE CONTENT OF VALUATION REPORT ONE BY ONE IN DETAIL.

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Aug 2021 newsletter Issue-6, Volume-1
THERE ARE QUITE A FEW REGULATORY SPACES
WHICH NEEDS TO BE KEPT IN CONSIDERATION
WHILE MAKING THE REPORT. IN THIS ARTICLE WE
SHALL DISCUSS REGARDING DRAFTING AND THE
CONTENT OF VALUATION REPORT ONE BY ONE IN
DETAIL.
DRAFTING OF
VALUATION REPORT
About the Author
CA Sudha G Bhushan
FCA,FCS, RV & IP (IBBI),
INDEPENDENT WOMEN
DIRECTOR (REGD. WITH MCA)
E-mail-sudha@taxpertpro.com
Mobile - +91 9769033172
Sudha G. Bhushan is a renowned Finance
Professional with more than 20 years of experience
and is a Co-Founder of Taxpert Professionals, a
multifaceted consulting company. She is advisor to
lots of big multinational company.
Objective of Valuation Report
The objective of a valuation report is to present the
result of findings of a comprehensive appraisal of and
revealing a user-specific value for, one or more items.
The principal qualitative characteristics that a report
should have are understandability, relevance and
reliability.
Understandability
An essential quality of the underlying information
provided in valuation report is that it must be readily
understandable by the intended users. For this purpose,
it is assumed that users have a reasonable knowledge
of business and economic activities and valuation
approaches and methods followed in the preparation of
the valuation report and ability to study the information
with reasonable diligence. However, information about
complex matters that should be included in the
valuation report because of its relevance to the
economic decision-making needs of users should not be
excluded merely on the grounds that it may be too
difficult for certain users to understand.
Relevance
To be useful, the underlying information in a valuation
report must be relevant to the decision-making needs
of the intended users. Information provided in the
valuation report has the quality of relevance when it
influences the economic and other decisions of users.
Materiality
The relevance of the underlying information in
valuation report is affected by its nature and
materiality. The underlying information in valuation
report is material if its omission or misstatement could
influence the economic decisions taken by intended-
users on the basis of the valuation report. Materiality
depends on the size of the item or error judged in the
particular circumstances of its omission or
misstatement. Thus, materiality provides a threshold
or cut-off point rather than being a primary qualitative
characteristic, which information must have if it is to
be useful.
International Valuation
Standard -IVS
Guidelines
Issued by
IBBI
Other Statutory
Framework
Companies
(registered
valuers and
valuation)
rules, 2017
Understandability Relevance Materiality Reliability

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Aug 2021 newsletter Issue-6, Volume-1
Reliability
To be useful, the underlying information in a valuation
report must be reliable. Information has the quality of
reliability when it is free from material error and bias
and can be relied upon by users to represent faithfully
that which, it either purports to represent or could
reasonably be expected to represent.
Underlying information in valuation report must be
complete within the bounds of materiality and cost. An
omission can cause information to be false or
misleading and thus unreliable and deficient in terms of
its relevance.
Format of the report
The format of the report should be agreed with all
parties as part of establishing a scope of work. The
report should be sufficient for an appropriately
experienced valuation professional with no prior
involvement with the valuation engagement to review
the report and understand the items
Three essential things for a good valuation report :
Documentation, Documentation and Documentation
Valuation report starts with Documentation and ends
with proper complete documentation.
Management Representations
A valuer may obtain written representations from the
management/client regarding information for
performing the valuation assignment. The decision to
obtain a representation letter is a matter of judgment
by the valuer.
A written representation obtained from the
management or those charged with governance
becomes part of the evidence obtained by the valuer
which forms a basis for his valuation report. Wherever
a valuer obtains written representations from the
management/client regarding information which is the
base for the valuation assignment, the valuer shall
mention the fact of such representation and the reliance
placed on the same.
However, it should be noted that the existence of a
management representation letter shall not preclude
the valuer from exercising reasonable skill and care with
respect to the information obtained regarding the
valuation. The valuer shall carry required procedures in
the performance of his valuation assignment in respect
of the information included in the management
representation letter.
Documentation
Documentation includes the record of valuation
procedures performed, relevant evidence obtained and
conclusions that the valuer has reached. One should
maintain documentation which provides:
(a) sufficient and appropriate record of the basis of the
valuation report; and
(b) evidence that the valuation assignment was
planned and performed properly in accordance with
the Valuation Standards and applicable legal and
regulatory requirements, as the case maybe.
More often what happens that we leave the
documentation to the end. But the Documentation
shall be prepared at the time the valuation assignment
is performed.
A valuer shall ensure that the documentation is
maintained in a form that is sufficient to enable another
professional having no connection with the
engagement or a reviewer appointed by any relevant
professional body, to review the valuation process and
conclusions.
The information received and relied upon, as well as
analyses thereon differ for every valuation
engagement, However, the following
documents/information/analyses shall, at the
minimum, be documented:
Documentation
•Appointment
letter
•Management
Representation
letter
Valuation Report
•Preface
•Body
•Conclusion
Documentation
•Working Papers
•Policy of
documentation

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(a) engagement or appointment letter which appoints
the valuer to undertake the valuation;
(b) tabulation of data obtained during the course of
(c) valuation;
(d) workings undertaken to arrive at the value;
(e) copies of relevant circulars, extracts of legal
provisions;
(f) the base/s, approach/es, and method/s, or a
combination thereof, used to arrive at the value;
(g) assumptions, a change in which, may materially
affect the value;
(h) a copy of the signed valuation report issued; and
(i) management/client representation letter or such
communication received, if any.
The valuation documentation is not limited to records
prepared by the valuer but may include appropriate
records such as minutes of meetings, reports issued by
other experts, and other independent industry/sector or
other such data provided to the valuer by the client, if
any.
Unless otherwise specified by law or regulation,
valuation documentation is the property of the valuer.
Retention of information
A valuer shall retain the information obtained, as well
as his analyses, assumptions, and workings to arrive at
the valuation for a period of time sufficient to meet the
needs of applicable legal, regulatory or other
professional requirements for records retention. This
retention period for valuation documentation is
ordinarily not shorter than eight years from the date of
the valuation report. The valuer may maintain
documentation in either physical or electronic format.
It is best to have an established a policy to maintain the
confidentiality, safe custody, integrity, accessibility and
retrievability of the documentation.
Content of the report
As we discussed there are three parts of the report:
 Management representation letter, Appointment
letter
 Report
 Documentation
We have discussed about the Management
representation letter and the appointment letter and the
importance and manner of documentation.
Let us now discuss about the content of the report
 Preface of report
 Body is then again divided into few major
components
 Conclusion
 Annexure
Preface of the report
The following should form part of the preface of the
report
(a) background information of the asset being valued;
(b) purpose of the valuation and appointing authority;
(c) the identity of the valuer and any other experts
involved in the valuation;
(d) disclosure of the valuer’s interest or conflict, if any;
(e) date of appointment, valuation date and date of
the valuation report;
(f) inspections and/or investigations undertaken;
(g) nature and sources of the information used or
relied upon;
These points are discussed below in detail:
Back ground information
Of the asset being valued. What is the asset which is
being valued and the purpose of it.
If we were to divide we can divide the purpose in two
types one is commercial purpose and the other
purpose is statutory.
Purpose of valuation
There can be many purpose of valuation and the
purpose needs to be appropriately stated in the
valuation report.
There are various reasons for which a business owner
or an individual may need to know the value of its
business (or its assets) such as:
• To evaluate an offer and negotiate a strategic sale
of a business.
• To determine the per share value of an Employee
Stock Ownership
• Plan (ESOP).
• For exit strategy planning purposes
• To value a portfolio of Intellectual Property Rights –
patents, trademarks, copyrights, proprietary
processes, etc.
• To undertake division wise valuations so as to
identify weak divisions of a business; this may be to
refocus the operational efforts or to divest
• the under-performing divisions.

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For shareholder or partnership disputes.
• For shareholder or partnership investments or
buyouts.
• For buy-sell purposes and raising funds.
• To obtain bank financing or alternative investment.
• For financial reporting purposes
• For goodwill impairment testing purposes.
• To allocate the purchase price after an acquisition of
a business.
• For tax planning purposes – transferring an interest
to family members,
• transfer to trusts, corporate restructuring purposes,
etc.
• To value stock options
• To set a current baseline value of the business and
develop a strategy to improve the profitability of the
business and increase the value of the
• business in future.
• To value a business for a business bankruptcy.
• To assess whether the fair value is different from the
market’s perception of the value of the business.
(c) the identity of the valuer and any other experts
involved in the valuation;
(d) Disclosure of the valuer’s interest or conflict, if any
As per COMPANIES (REGISTERED VALUERS AND
VALUATION) RULES, 2017 A valuer should act with
objectivity in his/its professional dealings by ensuring
that his/its decisions are made without the presence of
any bias, conflict of interest, coercion, or undue
influence of any party, whether directly connected to
the valuation assignment or not. A valuer should not
take up an assignment under the Act/Rules if he/it or
any of his/its relatives or associates is not independent
in relation to the company and assets being valued. A
valuer should maintain complete independence in
his/its professional relationships and shall conduct the
valuation independent of external influences. A valuer
should wherever necessary disclose to the clients,
possible sources of conflicts of duties and interests,
while providing unbiased services.
(e) Valuation date:
Valuation date is the specific date at which the valuer
estimates the value of the underlying asset. Valuation
is time specific and can change with the passage of time
due to changes in the condition of the asset to be
valued and/ or market. Accordingly, valuation of an
asset as at a particular date can be different from other
date(s).
Body of the report
Procedures adopted in carrying out valuation and
valuation standards followed;
Valuation methodology used;
Restrictions on use of the valuation report, if any;
Major factors that were taken into account during the
valuation;
Discussed in detail:
(a) Procedures involved in preparation of a
valuation report
The procedures adopted in carrying out a valuation
may vary with circumstances, nature and purpose of
valuation as well as information and time available. The
principal procedures adopted by the RV in carrying out
the valuation should be set out briefly in the report.
Such procedures may typically include:
•Review of past financials;
•Review and analysis of financial projections;
•Industry analysis;
•SWOT analysis;
•Comparison with similar transactions;
•Comparison with other similar listed companies;
•Discussions with the management;
•Review of principal agreements/documents etc;
•Site visit (external, internal or both) or desktop
valuation;
Any assumption made for internal condition must be
stated like in case of desktop valuation, a RV must
state that the basis of the report is photographs and
documents provided and secondary research only; and
Process of site identification, i.e., self-identified or
with the help of client’s representative or client itself.
(b) Valuation methodology used
A valuer shall use appropriate valuation approach/
approaches for arriving at the value. valuation
approaches are as follows:
(a) Market approach;
(b) Income approach; and
(c) Cost approach.
The examples of various methods within these
approaches are:
(a) market price method;
(b) comparable company’s multiple method;
(c) comparable transaction multiple method;
(d) discounted cash flow method;
(e) relief from royalty method;
(f) multi-period excess earnings method;

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(g) with and without method;
(h) option pricing method;
(i) replacement cost method; and
(j) reproduction cost method.
(c) Restrictions on use of the valuation report,
if any :-
discussed in detail later in the article.
(d) Key factors that impact the valuation
The RV should mention any key factors which have a
material impact on the valuation, including inter alia the
size or number of the assets or shares of the company,
its/their materiality or significance, minority or majority
holding and changes on account of the transaction, any
impacts on controlling interest, diminution or
augmentation therein and marketability or lack thereof;
prevailing market conditions and government policy in
the specified industry as a disclaimer depending upon
the factor.
Assumptions
 an affirmative statement that information provided
and assumptions used by management/others in
developing projections have been appropriately
reviewed, enquiries made regarding basis of key
assumptions in context of business being valued and
the industry/economy; and
 an affirmative statement on adequacy of
information and time for carrying out the valuations;
Conclusion
conclusion and caveats, limitation and disclaimers to
the extent they explainor elucidate the limitations
faced by valuer, which shall notbe for the purpose of
limiting his responsibility for thevaluation report.
In case of valuation of tangible assets, there may be
impact on the value due to faulty structural design or
contamination. Based on the individual circumstances,
the RV may decide on how to use such information in
the valuation report.
The valuation assignment concludes with the valuer
providing an estimate of value. Such an estimate of
value may be an exact number or a range of values.
A valuer shall clearly describe the conclusion of value,
either as a single amount or a range. In certain
cases, the law or regulatory orders may require the
valuer to report a specific amount, which may be a
number or some other specific unit. In such cases,
the valuer shall clearly describe the specific exchange
or swap ratio based on the value arrived at.
Additional Information
In addition to the minimum contents as given above, if
the valuer believes that certain additional information
will be useful to the user fora better understanding of
the valuation, the valuer may include such additional
information in the valuation report.
In the end I want to conclude with the advice that let
our report be the best, besides that we need to follow
the regulatory norms with regard to disclosure etc. our
reports are reflection of our work. So let it reflect the
knowledge, professionalism, accuracy and perfectness
of work.
Basically, of all the reports that I do I always tell my
team that you should write a report like a movie, like a
story. It should give all details to reader without being
the requirement of reference to any other material. I
mean the report shouldn’t be like “ kuttappa ne bahu
bali ko kyuunmaara”? All the questions should be
answered.
Caveats
•are warnings or cautions
to the client/user of
services.
Limitation
•is a restriction on the
scope of the RV’s work
including inspection or
investigation of the data
available for analysis that
may be present and
known to the RV at the
outset of the valuation
engagement or that may
arise during the course of
a valuation assignment.
Disclaimer
•is a statement intended to
specify or delimit the
scope of rights and
obligations that may be
exercised and enforced by
parties in a legally
recognized relationship. It
is a statement denying
responsibility intended to
prevent civil liability
arising for particular acts
or omissions.