CORPORATE AFFAIRS STANDARD

BUSINESS VALUATION PRACTISE STANDARDS

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Business Valuation Practise Stan ar TABLE OF CONTENTS CHAPTER I - PREAMBLE

1.2 Purpose & Objective of the Standard.5 1. !ntroduction and Scope of the Standard...." 1.4 #$ceptions fro% the Standard.& CHAPTER II GENERAL AND ETHICAL STANDARDS..11 CHAPTER III VALUER SERVICES .1. 'a(uation #ngage%ent...1) .2. *a(cu(ation #ngage%ent....1"
CHAPTER IV - OVERALL ENGAGEMENT CONSIDERATIONS

4.1 +er%s of #ngage%ent ,+O#-...1. 4.2 /ature and 0isk in #ngage%ent.21 4. 2ssu%ption3 4i%iting conditions...21 4.4 Scope 0estriction and (i%itations...21 4.5 56pothetica( *onditions..22 4.) 7sing 8ork of e$pert....22 CHAPTER V DEVELOPMENT STANDARDS 5.1. 'a(uation Bases ,standard of 'a(ue- and Pre%ise.25 5.2. 2na(6sis of the subject interest..2) 5. . 9inancia( State%ent 2djust%ents. 1 5.4. 2pp(6ing va(uation approaches and %ethods 2 5.5. 'a(uation adjust%ents....41 5.). *onc(usion of va(ue....4 5.". Subse:uent #vents..4) 5... ;ocu%entation4" Page 2 of 62

Business Valuation Practise Stan ar

CHAPTER VI REPORTING STANDARDS.49 ).1. ;etai(ed 'a(uation 0eport.51 ).2. Su%%ar6 'a(uation 0eport...)2 ). . *a(cu(ation 0eport...)4 EFFECTIVE DATE.66 Append ! 2< =(ossar6 of Business 'a(uation +er%s...)" B< Sa%p(e 'a(uation #ngage%ent 4etter..112 *< !((ustrative (ist of 2ssu%ptions & 4i%itations111 ;< Sa%p(e >anage%ent 0epresentation (etter.115 #< 'a(uation report ? 'a(uation engage%ent11" 9< 'a(uation report ? *a(cu(ation engage%ent.11.

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Business Valuation Practise Stan ar

C"APTER I

CHAPTER I PREAMBLE ".". B#$%&'()nd ;uring (ast decade profound changes have taken p(ace in econo%ic and business environ%ent. +he pace of gro8th has been pheno%ena(. +he continuit6 in the gro8th in business and e%ergence of ne8 generation entrepreneurs has tre%endous(6 increased participation of the pub(ic in the financia( %arket and deve(op%ent of ne8 financia( products. /or%a( coro((ar6 to econo%ic gro8th is the stakeho(ders@ curiosit6 and interest in va(uations of their respective investee institutions or potentia( invest%ents or divest%ents. 2(( these have (ed to a greater de%and for va(uation services as investors and shareho(ders are interested in up?to?date infor%ation on their assets. Since there are no standards for va(uation in !ndia3 the va(uation services (ack the unifor%it6 and genera((6 accepted practices in va(uation. 2 significant nu%ber of !*2! %e%bers are active(6 engaged in the va(uation services. +he business va(uation discip(ine has advanced as a profession. +hough there is a greater consensus a%ongst professiona( va(uers 8ith regard to genera((6 accepted approaches3 %ethods3 and procedures. /onethe(ess3 nu%erous conceptua( controversies sti(( re%ain3 even a%ong the %ost pro%inent practitioners. +herefore3 the need for education3 training3 regu(ation and standardiAation of the preva(ent practices keeping in vie8 the inherent (i%itations to the subject is necessar6. Business va(uation is a co%p(e$ process and it invo(ves a %u(titude of factors ranging fro% financia( %atters to historica( perspectives. !t is a broad and technica((6 cha((enging discip(ine. +he va(uation is perfor%ed in a variet6 of conte$ts and for a variet6 of purposes. T*e +('d ,#-)e .e#n/ d 00e'en1 1* n&/ 1( d 00e'en1 pe(p-e #nd 1*e 'e/)-1 + -- n(1 2e 1*e /#.e3 /*()-d 1*e $(n1e!1 $*#n&e. 2 va(uation is not an e$act science. +he va(ue is subjective ter% and can have a different connotation. 'a(uation invo(ves use of professiona( judge%ent3 kno8(edge of business3 ana(6sis of facts3 interpretations and used of different %ethods and procedures3 8hich %a6 resu(t into different va(ue in each Page # of 62

Business Valuation Practise Stan ar given situation. +his i%p(ies that the business va(ue %ust be %easured and defined b6 a Bstandard of va(ue@ that is re(evant3 %eaningfu( and re(iab(e. !n this backdrop3 considering the gro8ing need3 variet6 and co%p(e$it6 invo(ved in the va(uation e$ercises3 ICAI *#/ de$ ded 1( de,e-(p B)/ ne// V#-)#1 (n P'#$1 $e S1#nd#'d/ ,B'PS- 8hich 8ou(d estab(ish unifor% princip(es3 practices and procedures for 'a(uers perfor%ing va(uation services. ".4. P)'p(/e 5 O26e$1 ,e (0 1*e S1#nd#'d ".4.". P)'p(/e 'a(uations of businesses3 business o8nership interests3 securities3 tangib(e or intangib(e assets ,hereinafter co((ective(6 referred to as business va(uations- %a6 be perfor%ed for a 8ide variet6 of purposes inc(uding the fo((o8ing< 'a(uation for financia( transactions such as ac:uisitions3 %ergers3 (everaged bu6outs3 initia( pub(ic offerings3 e%p(o6ee stock o8nership p(ans and other share based p(ans3 partner and shareho(der bu6?ins or bu6outs3 and stock rede%ptions. 'a(uation for ;ispute 0eso(ution andC or (itigationCpending (itigation re(ating to %atters such as %arita( disso(ution3 bankruptc63 contractua( disputes3 o8ner disputes3 dissenting shareho(der and %inorit6 o8nership oppression cases3 e%p(o6%ent disputes and inte((ectua( propert6 disputes. 'a(uation for *o%p(iance?oriented engage%ents3 for e$a%p(e< a. F n#n$ #- 'ep('1 n& and b. +a$ %atters such as corporate reorganiAationsD inco%e ta$3 Propert6 ta$3 and Eea(th ta$ co%p(ianceD purchase price a((ocationsD and charitab(e contributions.

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Business Valuation Practise Stan ar Other purposes (ike va(uation for p(anning3 !nterna( use b6 the o8ners etc.

+he sa%e business %a6 have different va(ues if different standard of va(ue is used and different approaches are adopted. +he rising de%and for va(uation services has given ne8 avenues for the finance professiona(s. =oing for8ard %ore and %ore professiona( 8ou(d be engaged in perfor%ing va(uation services. 0ecogniAing these facts the !*2! has deve(oped this Business 'a(uation Practise Standard for the fo((o8ing purposes< Provide guidance to the 'a(uers in perfor%ing va(uation services ;efine genera( va(uation concepts3 princip(es3 approaches and %ethods ;efine basis of va(uation and pre%ise of va(uation Set out a code of conduct

".4.4. O26e$1 ,e +he objective is to provide co%%on standards for business va(uers 8ho are perfor%ing business va(uation engage%ents. Business va(uations %ethods and procedures fo((o8ed in esti%ating va(ues var6 ho8ever3 the6 re:uire si%i(ar princip(es 8hatever their purpose %a6 be. +herefore3 the overa(( objective is to deve(op a co%%on standard 8hereb6 a(( t6pes of va(uations are covered under one head and a consistent and prudent approach is fo((o8ed. !n particu(ar3 the objectives of the B'PS are< +o pro%ote Bbest practices@ and fairness in va(uation services +o pro%ote credibi(it63 re(evanc6 & transparenc6 of va(uation infor%ation. +o enhance :ua(it63 consistenc63 co%parabi(it6 and unifor%it6 of va(uation practice +o cover va(uation of a(( assets3 (iabi(ities and businesses ,cash f(o8sPage 6 of 62

Business Valuation Practise Stan ar +o enhance re(iance on the va(uation a%ongst stakeho(der +o i%prove corporate governance T( .p'(,e p)2- $ $(n0 den$e n ,#-)#1 (n +o i%prove %arket efficienc6

".7. In1'(d)$1 (n #nd S$(pe (0 1*e S1#nd#'d +his Business 'a(uation Practice Standard ,B'PS- propose to set out concepts3 princip(es3 practices and procedures in conte$t of esti%ation of va(ue of a subject %atter 8hich are genera((6 accepted internationa((6 and 8hich the *ounci( of the !nstitute considers desirab(e in the (ight of prevai(ing (ega( fra%e8ork3 procedures and practices in !ndia. +his Standard is designed to provide guidance to 'a(uers and to provide a structure for regu(ating the deve(op%ent and reporting of business va(uations through unifor% practices and procedures. +he 'a(uers shou(d be a8are of an6 =overn%enta( regu(ations and other professiona( standards app(icab(e to the engage%ent3 inc(uding the !*2!@s *ode of #thics and Schedu(e 1 and 2 to the F*hartered 2ccountants 2ct3 1&4&G. +his Standard estab(ishes standards for 'a(uers 8ho are engaged to va(ue a business3 business o8nership interest3 securit63 or intangib(e asset ,hereinafter co((ective(6 referred to in this Standard as subject interest-. 9or purposes of this Standard3 the definition of a business inc(udes not?for?profit entities or activities. A .e.2e' +*( pe'0('./ #n en&#&e.en1 1( e/1 .#1e ,#-)e / 'e0e''ed 1(3 n 1* / S1#nd#'d3 #/ # V#-)e'. 2s described in this Standard3 the ter% engage%ent to esti%ate va(ue refers to an engage%ent or an6 part of an engage%ent ,for e$a%p(e3 a ta$3 (itigation3 or ac:uisition? re(ated engage%ent- that invo(ves esti%ating the va(ue of a subject interest. !n the process of esti%ating va(ue as part of an engage%ent3 the 'a(uer sha(( app(6 va(uation approaches and va(uation %ethods3 as described in this Standard3 and use professiona( judg%ent. T*e )/e (0 p'(0e// (n#- 6)d&.en1 / #n e//en1 #- $(.p(nen1 (0 e/1 .#1 n& ,#-)e.

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Business Valuation Practise Stan ar Valuers in India, while performing valuation a engagement, shall follow the requirements of this Standard. Initially the requirement of this standard shall be recommendatory in nature and shall become mandatory from a date to be notified by the Council of ICAI. Valuers outside of India may follow the requirements of this Standard while performing valuation engagement to the extent to which they are not prevented from so doing by specific requirements of local laws and or regulations prevalent in that country . ICAI may adopt changes to the Standard to !eep in tune with changing business scenarios and requirements and issue interpretations of the Standard to assist the valuers in the in the application of the Standard as and when considered necessary. An n-dep1* d /$)// (n (0 ,#-)#1 (n 1*e('8 #nd p' n$ p-e/3 #nd *(+ #nd +*en 1( #pp-8 1*e.3 / n(1 + 1* n 1*e /$(pe (0 1* / S1#nd#'d #nd 1 (n-8 # ./ 1( p'(, de # 2'(#d 0'#.e+('% (0 &ene'#--8 #$$ep1ed p' n$ p-e/3 1*e(' e/ #nd p'($ed)'e/. ".4. E!$ep1 (n/ 0'(. 1*e S1#nd#'d +his Standard is not app(icab(e 8hen< 1.4.1. #sti%ation of va(ue is part of an attest engage%ent (ike audit3 revie83 co%pi(ation engage%ent etc. ,But the 'a(uers are encouraged to keep in vie8 the standards in these cases a(so.1.4.2. Ehen %echanica( co%putations are carried out that do not rise to the (eve( of an engage%ent to esti%ate va(ueD that is3 8hen the 'a(uer does not app(6 va(uation approaches and %ethods and does not use professiona( judg%ent. 1.4. . #ngage%ents are e$c(usive(6 for the purpose of deter%ining econo%ic da%ages ,for e$a%p(e3 (ost profits- un(ess those deter%inations inc(ude an engage%ent to esti%ate va(ue.

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Business Valuation Practise Stan ar 1.4.4. +he va(ue of a subject interest is provided to the 'a(uer b6 the c(ient or a third part63 and the 'a(uer does not app(6 va(uation approaches and %ethods3 as discussed in this Standard. 1.4.5. !t is not practica( or not reasonab(e to obtain or use re(evant infor%ationD as a resu(t3 the 'a(uer is unab(e to app(6 va(uation approaches and %ethods that are described in this Standard ".4.6. 9)' /d $1 (n#- E!$ep1 (n 2n6 part of this Standard is in contradiction 8ith an6 pub(ished govern%enta(3 judicia(3 or accounting authorit63 or such authorit6 specifies va(uation procedures3 then the 'a(uer shou(d fo((o8 the app(icab(e pub(ished authorit6 or stated procedures 8ith respect to that part app(icab(e to the va(uation in 8hich the 'a(uer is engaged. +he other parts of this Standard sha(( continue to app(6.

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Business Valuation Practise Stan ar CHAPTER II - GENERAL AND ETHICAL STANDARDS

C"APTER II

+his Standard describes the basic princip(es 8hich govern the va(uer@s professiona( responsibi(ities and 8hich sha(( be co%p(ied 8ith 8henever an engage%ent to esti%ate va(ue is carried out. 4." P'(0e// (n#- $(.pe1en$e

2 'a(uer sha(( Fundertake on(6 those professiona( services that the 'a(uer or the 'a(uer@s fir% can reasonab(6 e$pect to be co%p(eted 8ith professiona( co%petence.G Perfor%ing a va(uation engage%ent 8ith professiona( co%petence invo(ves specia( kno8(edge and ski((. 2 'a(uer shou(d possess a (eve( of kno8(edge of va(uation princip(es and theor6 and a (eve( of ski(( in the app(ication of such princip(es that 8i(( enab(e hi% or her to identif63 gather3 and ana(6Ae data3 consider and app(6 appropriate va(uation approaches and %ethods3 and use professiona( judg%ent in deve(oping the esti%ate of va(ue ,8hether a sing(e a%ount or a range-. Ehere ana(6stCfir% (acks the necessar6 kno8(edgeCe$perience3 he %ust take steps to gain such e$pertise through additiona( research andCor consu(tation 8ith other professiona(s be(ieved to have such kno8(edge andCor e$perience prior to co%p(etion of such engage%ents. 2n in?depth discussion of va(uation theor6 and princip(es3 and ho8 and 8hen to app(6 the%3 is not 8ithin the scope of this Standard.

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Business Valuation Practise Stan ar 4.4 P'(0e// (n#- d)e $#'e

C"APTER II

2 'a(uer %ust e$ercise due professiona( care in the perfor%ance of services3 inc(uding co%p(eting sufficient research and obtaining ade:uate docu%entation. 4.7 Independen$e

!f va(uation services are perfor%ed for a c(ient for 8hich the 'a(uer or 'a(uer@s fir% a(so perfor%s an attest engage%ent (ike audit3 revie83 co%pi(ation engage%ent etc. the 'a(uer shou(d consider 8hether it is appropriate to accept va(uation engage%ent or not3 so as not to i%pair the va(uer@s independence 8ith respect to the c(ient. +he ana(6st va(uing a subject sha(( act independent(63 free fro% a(( bias. 5e sha(( have no financia( or other interest in the subject being va(ued. Ehere a potentia( conf(ict of interest %a6 e$ist3 a 'a(uer shou(d %ake the disc(osures in the report. 4.4 F n#n$ #- In1e'e/1:

2 'a(uer sha(( not e$press a *onc(usion of 'a(ue or a *a(cu(ated 'a(ue un(ess the 'a(uer and the 'a(uer@s fir% state either of the fo((o8ing< a. F! ,Ee- have no financia( interest or conte%p(ated financia( interest in the propert6 that is the subject of this report.GD or b. F! ,Ee- have a ,specif6- financia( interest or conte%p(ated financia( interest in the propert6 that is the subject of this report.G 4.; In1e&' 18 5 (26e$1 , 18

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Business Valuation Practise Stan ar

C"APTER II

2 'a(uer sha(( re%ain objective3 app(6 professiona( integrit63 sha(( not kno8ing(6 %isrepresent facts3 or subrogate judg%ent to others. +he 'a(uer %ust not act in a %anner that is %is(eading or fraudu(ent. Objectivit6 is a state of %ind. +he ana(6st shou(d have objectivit6 in the perfor%ance of va(uation engage%ents. 5e %ust be fair and %ust not a((o8 prejudice or bias to override his objectivit6. 5e shou(d %aintain an i%partia( attitude and both be and appear to be free of an6 interest 8hich %ight be regarded3 8hatever its actua( effect3 as being inco%patib(e 8ith integrit6 and objectivit6. +he princip(e of objectivit6 i%poses the ob(igation to be i%partia(3 inte((ectua((6 honest3 disinterested3 and free fro% conf(icts of interest. !f necessar63 8here a potentia( conf(ict of interest %a6 e$ist3 a 'a(uer shou(d %ake the disc(osures and obtain consent fro% the c(ient. 4.6 C(n0 den1 #- 18

+he ana(6st shou(d respect the confidentia(it6 of infor%ation ac:uired in the course of his 8ork and shou(d not disc(ose an6 such infor%ation to a third part6 8ithout first obtaining the e$press consent of the c(ient or un(ess there is a (ega( or professiona( dut6 to disc(ose.

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Business Valuation Practise Stan ar 2.7 Skills and Competence

C"APTER II

T)e *aluation +or, s)oul -e .erfor/e an t)e *aluation re.ort s)oul -e .re.are +it) ue .rofessional care -0 .ersons +)o )a*e a e1uate training2 e3.erience an co/.etence in t)e gi*en +or,4 T)e *aluation anal0sis re1uires s.ecialise s,ills an co/.etence +)ic) are ac1uire t)roug) a co/-ination of general e ucation2 tec)nical ,no+le ge o-taine t)roug) stu 0 an for/al courses conclu e -0 a 1ualif0ing e3a/ination recognise for t)is .ur.ose an .ractical e3.erience un er .ro.er su.er*ision4 In a ition2 t)e Valuer re1uires a continuing a+areness of e*elo./ents in .ronounce/ents of ICAI on *aluation an relate /atters2 Ca.ital /ar,et2 Econo/ic Con itions an rele*ant regulations an statutor0 re1uire/ents4 2.8 Understandings and Communications with Clients.

A Valuer s)all esta-lis)2 +it) t)e client2 a +ritten or oral un erstan ing of t)e nature2 sco.e an li/itations of ser*ices to -e .erfor/e an t)e res.onsi-ilities of t)e .arties4 If circu/stances encountere uring t)e engage/ent re1uire a significant c)ange in t)ese un erstan ings2 t)e Valuer s)all notif0 t)e client4 A Valuer s)all infor/ t)e client of conflicts of interest2 significant reser*ations concerning t)e sco.e or -enefits of t)e engage/ent2 an significant engage/ent fin ings or e*ents4 2.9 Planning and Supervision

A Valuer s)all a e1uatel0 .lan an su.er*ise t)e .erfor/ance of an0 ser*ice .ro*i e 4

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Business Valuation Practise Stan ar 2.10 Su icient !elevant "ata.

C"APTER II

A Valuer s)all o-tain sufficient rele*ant ata to affor a reasona-le -asis for conclusions2 reco//en ations or .ositions relating to an0 ser*ice ren ere 4 2.11 !emuneration

2 'a(uer@s re%uneration for services sha(( not in an6 8a6 contingent upon so%e future eventsCperfor%ance or be (inked to the conc(usion of va(ue arrived at b6 hi% in respect of the subject under consideration. 5o8ever3 !n the case of a va(uation for the purpose of ;irect ta$es and duties3 the fee %a6 be based on a percentage of va(ue of subject business.

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Business Valuation Practise Stan ar CHAPTER III VALUATION SERVICES

C"APTER III

Ehen va(uing a business3 business o8nership interest3 securit6 or intangib(e asset3 a 'a(uer %a6 e$press either a *onc(usion of 'a(ue or *a(cu(ated 'a(ue. Ehen perfor%ing such va(uation services3 'a(uers sha(( co%p(6 8ith these standards pro%u(gated b6 !*2!. +here are broad(6 t8o t6pes of engage%ents to esti%ate va(ueHa valuation engagement and a calculation engagement. +he va(uation engage%ent re:uires %ore procedures than does the ca(cu(ation engage%ent. +he va(uation engage%ent resu(ts in a conc(usion of va(ue. +he ca(cu(ation engage%ent resu(ts in a ca(cu(ated va(ue. +he t6pe of engage%ent is estab(ished in the understanding 8ith the c(ient per +er%s of #ngage%ent ,para 4.1-< 3.1 Valuation engagement +he objective of a va(uation engage%ent is to e$press an una%biguous opinion as to the va(ue of a business3 business o8nership interest3 securit6 or intangib(e asset 8hich opinion is supported b6 a(( procedures that the appraiser dee%s to be re(evant to the va(uation. 2 'a(uation #ngage%ent re:uires that a 'a(uer app(6 va(uation approaches or %ethods dee%ed in the ana(6st@s professiona( judg%ent to be appropriate under the circu%stances. !n such an engage%ent3 a 'a(uer is free to app(6 the va(uation approaches and %ethods he or she dee%s appropriate in the circu%stances. 2 va(uation engage%ent has the fo((o8ing :ua(ities< .1.1. !ts conc(usion of va(ue is e$pressed as either a sing(e a%ount or a range .1.2. !t considers a(( re(evant infor%ation as of the appraisa( date avai(ab(e to the 'a(uer at the ti%e of perfor%ance of the va(uation .1. . +he 'a(uer conducts appropriate procedures to co((ect and ana(6Ae a(( infor%ation e$pected to be re(evant to the va(uation

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Business Valuation Practise Stan ar 'a(uer 3.2. Calculation engagement

C"APTER III

.1.4. +he va(uation considers a(( conceptua( approaches dee%ed to be re(evant b6 the

2 'a(uer perfor%s a ca(cu(ation engage%ent 8hen the 'a(uer and the c(ient agree on the va(uation approaches and %ethods the 'a(uer 8i(( use and the e$tent of procedures the 'a(uer 8i(( perfor% in the process of ca(cu(ating the va(ue of a subject interest ,these procedures 8i(( be %ore (i%ited than those of a va(uation engage%ent- and the 'a(uer ca(cu(ates the va(ue in co%p(iance 8ith the agree%ent. +he 'a(uer e$presses the resu(ts of these procedures as a ca(cu(ated va(ue. +he ca(cu(ated va(ue is e$pressed as a range or as a sing(e a%ount. 2 ca(cu(ation engage%ent does not inc(ude a(( of the procedures re:uired for a va(uation engage%ent ,para .1-

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Business Valuation Practise Stan ar CHAPTER IV - OVERALL ENGAGEMENT CONSIDERATIONS 4.". Te'./ (0 en&#&e.en1 <TOE=

C"APTER IV

+he 'a(uer shou(d estab(ish an understanding 8ith the c(ient3 preferab(6 in 8riting3 regarding the engage%ent to be perfor%ed. !f the understanding is ora(3 the 'a(uer shou(d docu%ent that understanding b6 appropriate %e%oranda or notations in the 8orking papers. ;efining the +er%s of engage%ent is the (ogica( beginning of the va(uation process providing focus for a(( the va(uation considerations and efforts to be undertaken. +he +er%s of #ngage%ent3 ora( or in 8riting3 sha(( c(ear(6 specif6 the nature3 scope and (i%itations of services to be perfor%ed and the responsibi(ities of the parties. !f the ana(6st encounters significant change in these understandings during the engage%ent3 he sha(( co%%unicate the sa%e to the c(ient. !nade:uate specifications often resu(t in %isdirected efforts and inva(id conc(usions. +he understanding of +er%s of engage%ent 8ith the c(ient reduces the possibi(it6 that either the 'a(uer or the c(ient %a6 %isinterpret the needs or e$pectations of the other part6. +er%s of engage%ent shou(d genera((6 but not restricted identif6 the fo((o8ing issues before accepting the engage%ent of va(uation. 4.1.1. Subject and interest to be va(ued ,Business interest3 securities3 intangib(es etc.4.1.2. /ature of #ngage%ent ,'a(uation engage%ent or ca(cu(ation engage%ent- ,para .1 and .24.1. . Purpose or intended use of va(uation 4.1.4. Scope of 8ork 4.1.5. #ffective ;ate of va(uation

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Business Valuation Practise Stan ar invest%ent va(ue3 or other- ,para 5.1.14.1.". Pre%ise of va(ue ,e.g.3 going concern3 (i:uidation- ,para 5.1.24.1... /ature of Business 4.1.&. Ino8(edge of the !ndustr6 4.1.11. Sources of infor%ation avai(ab(e 4.1.11. =overning (a8s and 0egu(ation 4.1.12. !ntended 7sers

C"APTER IV

4.1.). Standard of va(ue app(icab(e to the va(uation ,e.g.3 fair %arket va(ue3 fair va(ue3

4.1.1 . 2ssu%ption3 4i%iting conditions and scope (i%itations ,Para 4. & 4.4J 4.1.14. 2n6 h6pothetica( conditions used in the assign%ent , Para 4.54.1.15. 9ee for #ngage%ent A Sample "ngagement #etter is annexed in $Appendix B for the benefit of valuers. %he given "ngagement letter is a sample only which can be used by the Valuer, but is not required, and need to be modified according to the requirement of particular engagement.

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Business Valuation Practise Stan ar 4.4. Unde'/1#nd n& 1*e N#1)'e And R /%/ O0 T*e V#-)#1 (n Se', $e/

C"APTER IV

!t is essentia( for the 'a(uer to understand the nature of va(uation services supposed to be provided and assess the inherent risk e%bedded in that. !n understanding the nature and risks of the va(uation services to be provided3 and the e$pectations of the c(ient3 the 'a(uer shou(d consider the %atters specified in para 4.1 and in addition3 at a %ini%u%3 the fo((o8ing< 4.2.1. +he proposed ter%s of the va(uation engage%ent 4.2.2. +he identit6 of the c(ient 4.2. . +he nature of the interest and o8nership rights in the business3 business interest3 securit63 or intangib(e asset being va(ued3 inc(uding contro( characteristics and the degree of %arketabi(it6 of the interest 4.2.4. +he procedura( re:uire%ents of a va(uation engage%ent and the e$tent3 if an63 to 8hich procedures 8i(( be (i%ited b6 either the c(ient or circu%stances be6ond the c(ient@s or the 'a(uer@s contro( 4.2.5. +he use of and (i%itations of the report3 and the conc(usion or ca(cu(ated va(ue 4.2.). 2n6 ob(igation to update the va(uation.

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Business Valuation Practise Stan ar 4.7. A//).p1 (n/ #nd L . 1 n& $(nd 1 (n/

C"APTER IV

2ssu%ptions and (i%iting conditions are co%%on to va(uation engage%ents. +he assu%ptions and (i%iting conditions shou(d be disc(osed in the va(uation report. +he va(uer shou(d e$a%ine 8hether the assu%ptions considered in va(uation engage%ent are broad(6 re(iab(e3 re(evant3 (ogica(3 achievab(e and rea(istic in ter%s of the overa(( business conditions and circu%stances. !n case the assu%ptions %ateria((6 depart fro% the professiona( judge%ent of the va(uer3 the va(uer %a6 consider not to issue an6 0eport or %a6 8ithdra8 fro% the engage%ent. !f the (i%iting conditions are so %ateria( in nature that the i%pact on the overa(( engage%ent is ver6 significant in the professiona( judg%ent of the va(uer3 the va(uer %a6 consider not to issue an6 report or %a6 8ithdra8 fro% the engage%ent. #$a%p(es of t6pica( assu%ptions and (i%iting conditions for a business va(uation are provided in Append ! C3 F!((ustrative 4ist of 2ssu%ptions and 4i%iting *onditions for a Business 'a(uation.G 4.4. S$(pe Re/1' $1 (n/ (' L . 1#1 (n/ 2 restriction or (i%itation on the scope of the 'a(uer@s 8ork3 or the data avai(ab(e for ana(6sis3 %a6 be present and kno8n to the 'a(uer at the outset of the va(uation engage%ent or %a6 arise during the course of a va(uation engage%ent. Such a restriction or (i%itation shou(d be disc(osed in the va(uation report. !f the scope restriction is so %ateria( in nature that significant(6 i%pact the basic concepts and princip(es of the va(uation or it beco%es ver6 difficu(t to arrive at va(uation conc(usion due to the scope restriction3 the va(uer %a6 consider not to issue an6 va(uation report or %a6 8ithdra8 fro% the engage%ent.

Page 2( of 62

Business Valuation Practise Stan ar 4.;. H8p(1*e1 $#- C(nd 1 (n/

C"APTER IV

56pothetica( conditions affecting the subject interest %a6 be re:uired in so%e circu%stances. Ehen a 'a(uer uses h6pothetica( conditions during a va(uation or ca(cu(ation engage%ent3 he or she shou(d indicate the purpose for inc(uding the h6pothetica( conditions and disc(ose these conditions in the va(uation or ca(cu(ation report. +he h6pothetica( conditions shou(d be consistent 8ith the overa(( objective3 nature3 scope and subject %atter of va(uation. 4.6. U/ n& +('% (0 e!pe'1 !n perfor%ing an engage%ent to esti%ate va(ue3 the 'a(uer %a6 have to use the services of a third part6 specia(ist ,for e$a%p(e3 a rea( estate or e:uip%ent appraiser-. +he 'a(uer shou(d note in the assu%ptions and (i%iting conditions the (eve( of responsibi(it63 if an63 being assu%ed b6 the 'a(uer for the 8ork of the third part6 specia(ist. 2t the option of the 'a(uer3 the 8ritten report of the third part6 specia(ist %a6 be inc(uded in the 'a(uer@s report. Ehi(e using the 8ork of an e$pert in va(uation3 the 'a(uer sha(( take due consideration of the fo((o8ing< 4.).1. 'a(uer sha(( eva(uate the ski((s3 :ua(ification3 e$perience3 reputation and co%petence of the e$pert. #$pert is responsib(e for a(( the %ethods and assu%ptions used b6 hi%. 5e %ust deter%ine that the e$pert has sufficient resources to perfor% the 8ork in specified ti%e fra%e and a(so e$p(ore the re(ationship 8hich %ight give rise to conf(ict of interest. 4.).2. !f the 8ork of a third part6 e$pert3 such as a rea( estate or e:uip%ent appraiser3 8as re(ied upon in the engage%ent3 a description of the re(iance and (eve( of 'a(uer@s responsibi(it6 shou(d be docu%ented. 4.). . 'a(uerC'a(uation fir% shou(d specifica((6 %ention the nature of 8ork done b6 e$pert in its va(uation report and he shou(d give a disc(ai%er in the report that Page 21 of 62

Business Valuation Practise Stan ar for an6 non consistent or %is(eading 8ork done b6 that e$pert.

C"APTER IV

for this particu(ar task he has taken advice of an e$pert and he is not responsib(e

Page 22 of 62

Business Valuation Practise Stan ar CHAPTER V VALUATION METHODOLOG> !n perfor%ing a va(uation engage%ent3 the 'a(uer shou(d< ;efine the Standard and Pre%ise of 'a(ue ,para 5.1-

C"APTER V

2na(6Ae the subject interest and co((ect the necessar6 !nfor%ation ,para 5.22djust the 9inancia( State%ent appropriate(6 ,para 5. *onsider and app(6 appropriate va(uation approaches and %ethods ,para 5.4'a(uation adjust%ents ,para 5.5*onc(usion of va(ue,para 5.)Subse:uent #vents,para 5."Prepare and %aintain appropriate docu%entation ,para 5..-

#ven though the above %entioned procedure is presented in a %anner that suggests a se:uentia( va(uation process3 va(uations invo(ve an ongoing process of gathering3 updating3 and ana(6Aing infor%ation. 2ccording(63 the se:uence of the re:uire%ents and guidance in this Standard %a6 be i%p(e%ented different(6 at the option of the 'a(uer.

Page 2! of 62

Business Valuation Practise Stan ar ;.". V#-)#1 (n B#/e/ </1#nd#'d (0 ,#-)e= #nd P'e. /e 7." V#-)#1 (n 2#/e/ </1#nd#'d (0 ,#-)e=

C"APTER V

Standard of va(ue %eans the indication of the t6pe of va(ue being used in a specific engage%ent. Business interests are va(ued in a variet6 of conte$ts and for a variet6 of purposes. ;ifferent standards of va(ue %a6 (ead 6ou to different conc(usions of 'a(ue. +herefore3 it is %ost i%portant for the 'a(uer to identif6 a standard or definition of va(ue pertinent to the case. +here are broad(6 four standards of va(ue< 7.4 9air %arket va(ue 9air va(ue !nvest%ent va(ue !ntrinsic va(ue or funda%enta( va(ue V#-)#1 (n p'e. /e

;eter%ining the business va(ue depends upon the situation in 8hich the business is va(ued3 i.e3 8hat is (ike(6 to happen to the business be6ond the va(uation date inf(uences 8hat the business is 8orth toda6. +he pre%ise of va(ue describes the t6pe of %arket conditions the se((er of the business interest %ight reasonab(6 encounter and shou(d a(8a6s ref(ect the facts and circu%stances under(6ing each va(uation engage%ent. +8o basic pre%ise of 'a(uation are< =oing concern< 'a(ue in continued use 4i:uidation< 'a(ue in (i:uidation

;.4. An#-8/ / (0 1*e S)26e$1 In1e'e/1 +he ana(6sis of the subject interest 8i(( assist the 'a(uer in considering3 eva(uating3 and app(6ing the various va(uation approaches and %ethods to the subject interest. +he nature Page 2# of 62

Business Valuation Practise Stan ar %ini%u%3 the fo((o8ing< /ature of the subject interest Scope of the va(uation engage%ent 'a(uation date !ntended use of the va(uation 2pp(icab(e standard of va(ue 2pp(icab(e pre%ise of va(ue 2ssu%ptions and (i%iting conditions 2pp(icab(e govern%enta( regu(ations or other professiona( standards

C"APTER V

and e$tent of the infor%ation needed to perfor% the ana(6sis 8i(( depend on3 at a

!n ana(6Aing the subject interest3 the 'a(uer sha(( gather3 ana(6Ae and adjust the re(evant infor%ation necessar6 to perfor% a va(uation appropriate to the nature or t6pe of the engage%ent. Such infor%ation sha(( inc(ude< /on?financia( infor%ation O8nership detai(s 9inancia( !nfor%ation =enera( !nfor%ation

+he t6pe3 avai(abi(it63 and significance of such infor%ation var6 8ith the subject interest. ;.4.". N(n-0 n#n$ #- n0('.#1 (n Page 2$ of 62

Business Valuation Practise Stan ar

C"APTER V

+he 'a(uer shou(d3 as avai(ab(e and app(icab(e to the va(uation engage%ent3 obtain sufficient non?financia( infor%ation to enab(e hi% or her to understand the subject entit63 inc(uding its<

/ature3 background3 and histor6 of the business 9aci(ities OrganiAationa( structure >anage%ent tea% ,8hich %a6 inc(ude officers3 directors3 and ke6 e%p(o6ees*(asses of e:uit6 o8nership interests and rights attached thereto Products or services3 or both *apita( %arkets providing re(evant infor%ationD e.g.3 avai(ab(e rates of return on a(ternative invest%ents3 re(evant pub(ic stock %arket infor%ation and re(evant %erger and ac:uisition infor%ation

Prior transactions invo(ving the subject business3 or invo(ving interests in3 the securities of3 or intangib(e assets in the subject business

#cono%ic environ%ent =eographica( %arkets !ndustr6 %arkets Ie6 custo%ers and supp(iers *o%petition Business risks Page 26 of 62

Business Valuation Practise Stan ar 9uture out(ook of the business Strateg6 and future p(ans =overn%enta( or regu(ator6 environ%ent

C"APTER V

;.4.4. O+ne'/* p In0('.#1 (n +he 'a(uer shou(d obtain3 8here app(icab(e and avai(ab(e3 o8nership infor%ation regarding the subject interest to enab(e hi% or her to<

;eter%ine the t6pe of o8nership interest being va(ued and ascertain 8hether that interest e$hibits contro( characteristics

2na(6Ae the different o8nership interests of other o8ners and assess the potentia( effect on the va(ue of the subject interest

7nderstand the c(asses of e:uit6 o8nership interests and rights attached thereto 7nderstand the rights inc(uded in3 or e$c(uded fro%3 each intangib(e asset 7nderstand other %atters that %a6 affect the va(ue of the subject interest3 such as<
5

9or a business3 business o8nership interest3 or securit6< shareho(der agree%ents3 partnership agree%ents3 operating agree%ents3 voting trust agree%ents3 bu6?se(( agree%ents3 (oan covenants3 restrictions3 and other contractua( ob(igations or restrictions affecting the o8ners and the subject interest

9or an intangib(e asset< (ega( rights3 (icensing agree%ents3 sub(icense agree%ents3 nondisc(osure agree%ents3 deve(op%ent rights3 co%%ercia(iAation or e$p(oitation rights3 and other contractua( ob(igations

Page 2% of 62

Business Valuation Practise Stan ar ;.4.7. F n#n$ #- In0('.#1 (n

C"APTER V

+he 'a(uer shou(d obtain3 8here app(icab(e and avai(ab(e3 financia( infor%ation on the subject entit6 such as<

5istorica( financia( infor%ation ,inc(uding annua( and interi% financia( state%ents and ke6 financia( state%ent ratios and statistics- for an appropriate nu%ber of 6ears

Prospective financia( infor%ation ,for e$a%p(e3 budgets3 forecasts3 and projections-

*o%parative su%%aries of financia( state%ents or infor%ation covering a re(evant ti%e period

*o%parative co%%on siAe financia( state%ents for the subject entit6 for an appropriate nu%ber of 6ears

*o%parative co%%on siAe industr6 financia( infor%ation for a re(evant ti%e period

!nco%e ta$ returns for an appropriate nu%ber of 6ears !nfor%ation on co%pensation for o8ners inc(uding benefits and persona( e$penses

!nfor%ation on ke6 %an or officers@ (ife insurance >anage%ent@s response to in:uir6 regarding<
5 5 5

2dvantageous or disadvantageous contracts *ontingent or off?ba(ance?sheet assets or (iabi(ities !nfor%ation on prior sa(es of co%pan6 stock Page 2& of 62

Business Valuation Practise Stan ar the purposes of the engage%ent.

C"APTER V

+he 'a(uer shou(d read and eva(uate the infor%ation to deter%ine that it is reasonab(e for

Page 2' of 62

Business Valuation Practise Stan ar ;.4.4. Gene'#- In0('.#1 (n:

C"APTER V

+he ana(6st sha(( gather and ana(6Ae the re(evant genera( infor%ation 8hich %a6 affect the business direct(6 or indirect(6 andCor 8hich are dee%ed re(evant b6 the 'a(uer. ;.7. F n#n$ #- S1#1e.en1 Ad6)/1.en1/ +he historica( financia( state%ents shou(d be ana(6Aed and3 if appropriate3 adjusted to ref(ect the appropriate asset va(ue3 inco%e3 cash f(o8s andCor benefit strea%3 as app(icab(e3 to be consistent 8ith the va(uation %ethod,s- se(ected b6 the 'a(uer. 9inancia( state%ents to be ana(6Aed inc(ude those of the subject entit6 and an6 entities used as co%parab(e co%panies. 9inancia( state%ent adjust%ents are %odifications to reported financia( infor%ation that are re(evant and significant to the appraisa( process. 2djust%ents %a6 be appropriate for the fo((o8ing reasons3 a%ong others< 5. .1. +o present financia( data of the subject and co%parab(e co%panies on a consistent basis 5. .2. +o adjust fro% reported va(ues to current va(ues 5. . . +o adjust revenues and e$penses to (eve(s that are reasonab(6 representative of continuing resu(ts 5. .4. +o adjust for non?operating assets and (iabi(ities3 and an6 revenues and e$penses re(ated to the non?operating ite%s 9inancia( state%ent adjust%ents are %ade for the so(e purpose of assisting the 'a(uer in reaching a conc(usion of va(ue. 2(( adjust%ents %ade shou(d be fu((6 described and supported. ;.4. V#-)#1 (n App'(#$*ed 5 Me1*(d/

Page !( of 62

Business Valuation Practise Stan ar approaches are<

C"APTER V

!n deve(oping the va(uation3 the 'a(uer shou(d consider the three %ost co%%on va(uation

2sset ,2sset?based- approach ,used for businesses3 business o8nership interests3 and securities- or cost approach ,used for intangib(e assets >arket ,>arket?based- approach !nco%e ,!nco%e?based- approach +he ana(6st sha(( se(ect and app(6 appropriate va(uation approaches3 %ethods and procedures. 5e sha(( deve(op a conc(usion of va(ue considering the re(evant va(uation approaches3 %ethods and procedures3 the infor%ation avai(ab(e and appropriate pre%iu%s and discounts3 if an6. =enera( guidance on the use of approaches and %ethods is produced in fo((o8ing paras3 but detai(ed guidance on specific va(uation approaches and %ethods and their app(icabi(it6 is outside the scope of this Standard. ;.4.". A//e1-2#/ed #pp'(#$* #nd C(/1 App'(#$* +he asset?based approach is a genera( 8a6 of deter%ining a va(ue indication of a business3 business o8nership interest3 securit63 or intangib(e asset using one or %ore %ethods based on the va(ue of the assets net of (iabi(ities. 2 fre:uent(6 used %ethod under the asset approach is the adjusted net asset %ethod. Ehen using the adjusted net asset %ethod in va(uing a business3 business o8nership interest3 or securit63 the 'a(uer shou(d consider3 as appropriate3 the fo((o8ing infor%ation<
5 5 5

!dentification of the assets and (iabi(ities 'a(ue of the assets and (iabi(ities ,individua((6 or in the aggregate4i:uidation costs ,if app(icab(e-

+he asset?based approach shou(d not be the so(e va(uation approach used in assign%ents re(ating to operating co%panies va(ued as going concerns un(ess this approach is custo%ari(6 used b6 se((ers and bu6ers. !n such cases3 the se(ection of this approach sha(( be supported b6 the 2na(6st. Page !1 of 62

Business Valuation Practise Stan ar

C"APTER V

Ehen using %ethods under the cost approach to va(ue intangib(e assets3 the 'a(uer shou(d consider the t6pe of cost to be used ,for e$a%p(e3 reproduction cost or rep(ace%ent cost-3 and3 8here app(icab(e3 the appropriate for%s of depreciation and obso(escence. +he ana(6st shou(d consider direct and indirect costs associated 8ith reproduction or rep(ace%ent3 as the case %a6 be3 as 8e(( as an6 (oss of va(ue due to functiona( or econo%ic obso(escence3 or reduced (ife e$pectanc6. ;.4.4. M#'%e1 #pp'(#$* +he %arket approach is a genera( 8a6 of deter%ining a va(ue indication of a business3 business o8nership interest3 securit6 or intangib(e asset b6 using one or %ore %ethods that co%pare the subject to si%i(ar businesses3 business o8nership interests3 securities or intangib(e assets that have been so(d. +hree fre:uent(6 used va(uation %ethods under the %arket approach for va(uing a 2)/ ne//3 2)/ ne// (+ne'/* p n1e'e/13 (' /e$)' 18 are< =uide(ine pub(ic co%pan6 %ethod =uide(ine co%pan6 transactions %ethod =uide(ine sa(es of interests in the subject entit63 such as business o8nership interests or securities +hree fre:uent(6 used %arket approach va(uation %ethods for n1#n& 2-e #//e1/ are< *o%parab(e uncontro((ed transactions %ethod ,8hich is based on ar%@s?(ength sa(es or (icenses of co%parab(e intangib(e assets *o%parab(e profit %argin %ethod ,8hich is based on co%parison of the profit %argin earned b6 the subject entit6 that o8ns or operates the intangib(e asset to profit %argins earned b6 co%parab(e co%paniesPage !2 of 62

Business Valuation Practise Stan ar

C"APTER V

0e(ief fro% ro6a(t6 %ethod ,8hich is based on the ro6a(t6 rate3 often e$pressed as a percentage of revenue that the subject entit6 that o8ns or operates the intangib(e asset 8ou(d be ob(igated to pa6 to a h6pothetica( third?part6 (icensor for the use of that intangib(e asset-

Ehi(e app(6ing the >arket approach %ethods3 the 'a(uer shou(d consider the fo((o8ing< 5.4.21. 0easonab(e basis for co%parison< +he business3 business o8nership interest3 securit6 or intangib(e asset used for co%parison %ust serve as a reasonab(e basis for co%parison to the subject. So%e of the factors to be considered in judging 8hether a reasonab(e basis for co%parison e$ists inc(ude< 2 sufficient si%i(arit6 of :ua(itative and :uantitative invest%ent characteristics +he a%ount and verifiabi(it6 of data kno8n about the si%i(ar invest%ent Ehether or not the price of the si%i(ar invest%ent 8as observed in an ar%@s?(ength transaction3 or in a forced or distressed sa(e 5.4.22. Se(ection of va(uation ratios< *o%parisons are nor%a((6 %ade through the use of va(uation ratios. +he co%putation and use of such ratios shou(d provide %eaningfu( insight about the va(ue of the subject3 considering a(( re(evant factors. 2ccording(63 'a(uer sha(( e$ercise due care 8ith respect to issues such as< +he se(ection of the under(6ing data used to co%pute the va(uation ratios +he se(ection of the ti%e periods andCor the averaging %ethods used for the under(6ing data Page !! of 62

Business Valuation Practise Stan ar +he co%putation of the va(uation ratios

C"APTER V

+he ti%ing of the price data used in the va(uation ratios ,in re(ationship to the effective date of the appraisa(-

5o8 the va(uation ratios 8ere se(ected and app(ied to the subjectKs under(6ing data !n genera(3 co%parisons shou(d be %ade b6 using co%parab(e definitions of the co%ponents of the va(uation ratios. 5o8ever3 8here appropriate3 va(uation ratios based on co%ponents that are reasonab(6 representative of ongoing resu(ts %a6 be used.

5.4.2 . =uide(ine !ntangib(e 2ssets< 9or the %ethods invo(ving guide(ine intangib(e assets3 the 'a(uer shou(d consider the subject intangib(e asset@s re%aining usefu( (ife re(ative to the re%aining usefu( (ife of the guide(ine intangib(e assets3 if avai(ab(e. !n app(6ing the %ethods to deter%ine va(uation pricing %u(tip(es or %etrics for va(uation of intangib(es3 the 'a(uer shou(d consider< Lua(itative and :uantitative co%parisons 2r%@s?(ength transactions and prices +he dates and3 conse:uent(63 the re(evance of the %arket data

;.4.7. In$(.e #pp'(#$* <C#/* F-(+/= +he inco%e approach is a genera( 8a6 of deter%ining a va(ue indication of a business3 business o8nership interest3 securit63 or intangib(e asset b6 using one or %ore %ethods through 8hich anticipated benefits are converted into va(ue. Page !# of 62

Business Valuation Practise Stan ar

C"APTER V

2nticipated benefits3 as used in the inco%e approach3 are e$pressed in %onetar6 ter%s. 2nticipated benefits %a6 be reasonab(6 represented b6 such ite%s as dividends or distributions3 or various for%s of earnings or cash f(o8. 2nticipated benefits shou(d be esti%ated b6 considering such ite%s as the nature3 capita( structure and historica( perfor%ance of the re(ated business entit63 the e$pected future out(ook for the business entit6 and re(evant industries3 and re(evant econo%ic factors. +8o fre:uent(6 used va(uation %ethods under the inco%e approach inc(ude the capita(iAation of benefits %ethod ,for e$a%p(e3 earnings or cash f(o8s- and the discounted future benefits %ethod ,for e$a%p(e3 earnings or cash f(o8s-. 5.4. .1. C#p 1#- ?#1 (n (0 2ene0 1/ .e1*(d. !n capita(iAation of benefits %ethods3 a representative benefit (eve( is divided or %u(tip(ied b6 an appropriate capita(iAation factor to convert the benefit to va(ue. Ehen app(6ing these %ethods3 the 'a(uer shou(d consider a variet6 of factors3 inc(uding but not (i%ited to3 the fo((o8ing< /or%a(iAation adjust%ents /onrecurring revenue and e$pense ite%s +a$es *apita( structure and financing costs 2ppropriate capita( invest%ents /on cash ite%s 9actors such interest rates3 the rates of return e$pected b6 investors on a(ternative invest%ents and the specific risk characteristics etc. to co%pute capita(iAation rates Page !$ of 62

Business Valuation Practise Stan ar

C"APTER V

#$pected changes ,gro8th or dec(ine- in future benefits ,for e$a%p(e3 earnings or cash f(o8s-

5.4. .2. D /$()n1ed 0)1)'e 2ene0 1/ .e1*(d. !n discounted future benefits %ethods3 benefits are esti%ated for each of severa( future periods. +hese benefits are converted to va(ue b6 app(6ing an appropriate discount rate and using present va(ue procedures. !n addition to the ite%s stated in para 5.4. .1 above3 the 'a(uer shou(d consider< 5.4. . . 9orecastCprojection assu%ptions 9orecastCprojected earnings or cash f(o8s +er%ina( va(ue +he 'a(uer shou(d se(ect the appropriate benefit strea%3 such as pre?ta$ or after?ta$ inco%e andCor cash f(o8s3 and se(ect appropriate capita(iAationCdiscount rate,s- to be consistent 8ith the va(uation %ethod,sse(ected. +he 'a(uer %ust consider appropriate capita(iAation andCor discount rates3 consistent 8ith the va(uation %ethod,s- se(ected and the t6pes of anticipated benefits used. 9or e$a%p(e3 pre?ta$ factors or discount rates shou(d be used 8ith pre?ta$ benefits3 co%%on e:uit6 factors or discount rates shou(d be used 8ith co%%on e:uit6 benefits and net cash f(o8 factors or discount rates shou(d be used 8ith net cash f(o8 benefits. +he capita(iAationCdiscount sha(( be deter%ined taking into consideration the fo((o8ing risk factors< +he nature of the businessD +he stabi(it6 or regu(arit6 of earningsD Page !6 of 62

Business Valuation Practise Stan ar (eve( of interest rates

C"APTER V

the rate of return e$pected b6 investors on a(ternative invest%ents +he specific risk characteristics of the anticipated benefits. +he stabi(it63 depth and e$perience of %anage%entD and Other risk factors 8hen appropriate in the opinion of the ana(6st.

5.4. .4.

9or an intangib(e asset3 the 'a(uer shou(d a(so consider3 8hen re(evant< 0e%aining usefu( (ife *urrent and anticipated future use of the intangib(e asset 0ights attributab(e to the intangib(e asset Position of intangib(e asset in its (ife c6c(e 2ppropriate discount rate for the intangib(e asset 2ppropriate capita( or contributor6 asset charge3 if an6 0esearch and deve(op%ent or %arketing e$pense needed to support the intangib(e asset in its e$isting state 2((ocation of inco%e ,for e$a%p(e3 incre%enta( inco%e3 residua( inco%e3 or profit sp(it inco%e- to intangib(e asset Ehether an6 ta$ a%ortiAation benefit 8ou(d be inc(uded in the ana(6sis ;iscounted %u(ti?6ear e$cess earnings Page !% of 62

Business Valuation Practise Stan ar 5.4. .5. >arket ro6a(ties 0e(ief fro% ro6a(t6

C"APTER V

!n discounted future benefits %ethods3 e$pected gro8th is considered in esti%ating the future strea% of benefits. !n capita(iAation of benefits %ethods3 e$pected gro8th is incorporated in the capita(iAation factor.

Page !& of 62

Business Valuation Practise Stan ar ;.4.4. R)-e/ (0 1*).2

C"APTER V

2(though technica((6 not a va(uation %ethod3 a ru(e of thu%b or bench%ark indicator is used as a reasonab(eness check against the va(ues deter%ined b6 the use of other va(uation approaches in a va(uation engage%ent. 0u(e of thu%b %a6 provide insight into the va(ue of a business3 business o8nership interest3 securit6 or intangib(e asset. 5o8ever3 it shou(d not be used as the on(6 %ethod to deter%ine the va(ue of the subject interest. 'a(ue indications derived fro% the use of ru(es of thu%b shou(d not be given substantia( 8eight un(ess the6 are supported b6 other va(uation %ethods and it can be estab(ished that kno8(edgeab(e bu6ers and se((ers p(ace substantia( re(iance on the%. +he source of ru(e of thu%b data shou(d be docu%ented. T*e V#-)e' /*()-d /e1 0('1* n 1*e 'ep('1 1*e '#1 (n#-e #nd /)pp('1 0(' 1*e ,#-)#1 (n .e1*(d/ )/ed. ;.;. V#-)#1 (n Ad6)/1.en1/ +he purpose3 app(icab(e standard of va(ue3 or other circu%stances of an engage%ent %a6 indicate the need to account for differences bet8een the base va(ue and the va(ue of the subject interest. !f so3 appropriate discounts or pre%iu%s shou(d be app(ied. #$a%p(es of va(uation adjust%ents for va(uation of a business3 business o8nership interest3 or securit6 inc(ude a d /$()n1 0(' -#$% (0 .#'%e1#2 - 18 or (i:uidit6 and a d /$()n1 0(' -#$% (0 $(n1'(-. 5.5.1. +o deter%ine 8hether an6 adjust%ent is re:uired to pre adjusted va(ue3 fo((o8ing %ust be considered b6 the 'a(uer if app(icab(e< M#'%e1#2 - 18 #nd L @) d 183 or the (ack thereof3 considering the nature of the business3 business o8nership interest or securit63 the effect of re(evant contractua(

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Business Valuation Practise Stan ar condition of the %arket for the interest being va(uedD

C"APTER V

and (ega( restrictions on transferabi(it6 of the interest being va(ued and the

A2 - 18 (0 1*e n1e'e/1 1( $(n1'(- the operation3 sa(e and (i:uidation of the re(ated business enterpriseD

other (eve(s of va(ue consideration such as i%pact of strategic or s6nergistic contributions to va(ueD and

Such other si%i(ar factors 8hen appropriate in the opinion of the 'a(uer.

5.5.2. Ehen va(uing a contro((ing o8nership interest under the inco%e approach3 the va(ue of an6 non operating assets3 non operating (iabi(ities3 or e$cess or deficient operating assets shou(d be e$c(uded fro% the co%putation of the va(ue based on the operating assets and shou(d be added to or de(eted fro% the va(ue of the operating entit6. Ehen va(uing a non contro((ing o8nership interest under the inco%e approach3 the va(ue of an6 non operating assets3 non operating (iabi(ities3 or e$cess or deficient operating assets %a6 or %a6 not be used to adjust the va(ue of the operating entit6 depending on the 'a(uer@s assess%ent of the inf(uence e$ercisab(e b6 the non contro((ing interest. !n the asset?based or cost approach3 it %a6 not be necessar6 to separate(6 consider non operating assets3 non operating (iabi(ities3 or e$cess or deficient operating assets. 5.5. . 'a(uer sha(( adhere to fo((o8ings 8hi(e %aking an6 adjust%ent in pre adjusted va(ue< +he base va(ue to 8hich the discount or pre%iu% is app(ied %ust be specified and defined. #ach discount or pre%iu% to be app(ied to the base va(ue %ust be defined. +he pri%ar6 reasons 8h6 each se(ected discount or pre%iu% app(ies to the appraised interest %ust be stated.

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Business Valuation Practise Stan ar

C"APTER V

+he evidence considered in deriving the discount or pre%iu% %ust be specified. +he ana(6stKs reasoning in arriving at a conc(usion regarding the siAe of an6 discount or pre%iu% app(ied %ust be e$p(ained.

;.6. C(n$-)/ (n (0 V#-)e +he conc(usion of va(ue reached b6 the ana(6st sha(( be based upon the app(icab(e standard of va(ue3 the purpose and intended use of the va(uation3 and a(( re(evant infor%ation avai(ab(e as of the va(uation date in carr6ing out the t6pe of engage%ent for the assign%ent and on va(ue indications resu(ting fro% one or %ore va(uation %ethods perfor%ed under the va(uation process. !n arriving at a conc(usion of va(ue3 the 'a(uer shou(d< 5.).1. *orre(ate and reconci(e the resu(ts obtained under the different approaches and %ethods used. 5.).2. 2ssess the re(iabi(it6 of the resu(ts under the different approaches and assign 8eights to va(ue indications reached on the basis of various %ethods. +he se(ection of and re(iance on appropriate %ethods and procedures depends on the judg%ent of the ana(6st and not on an6 prescribed for%u(a. One or %ore approaches %a6 not be re(evant to a particu(ar situation3 and %ore than one %ethod under an approach %a6 be re(evant. +he ana(6st %ust use infor%ed judg%ent 8hen deter%ining the re(ative 8eight to be accorded to indications of va(ue reached on the basis of various %ethods3 or 8hether an indication of va(ue fro% a sing(e %ethod shou(d be conc(usive. !n an6 case3 the ana(6st shou(d provide the rationa(e for the se(ection or 8eighting of the %ethod or %ethods re(ied on in reaching the conc(usion.

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Business Valuation Practise Stan ar

C"APTER V

5.). . !n assessing the re(ative i%portance of indications of va(ue deter%ined under each %ethod3 or 8hether an indication of va(ue fro% a sing(e %ethod shou(d do%inate3 the 'a(uer shou(d consider factors such as< +he app(icab(e standard of va(ue +he purpose and intended use of the va(uation Ehether the subject is an operating co%pan63 a rea( estate or invest%ent ho(ding co%pan63 or a co%pan6 8ith substantia( non?operating or e$cess assets +he :ua(it6 and re(iabi(it6 of data under(6ing the indication of va(ue Such other factors that3 in the opinion of the ana(6st3 are appropriate for consideration 5.).4. Add 1 (n#- 0#$1('/ 1( $(n/ de' 2s appropriate for the va(uation assign%ent as defined3 and if not considered in the process of deter%ining and 8eighting the indications of va(ue provided b6 various procedures3 the ana(6st shou(d separate(6 consider the fo((o8ing factors in reaching a fina( conc(usion of va(ue< >arketabi(it6 or (ack thereof3 considering the nature of the business3 the business o8nership interest3 securit6 or intangib(e asset +he effect of re(evant contractua( andCor other (ega( restrictions +he condition of the %arket,s- in 8hich the va(ued interest %ight trade +he abi(it6 of an o8ner of the va(ued interest to contro( the operation3 sa(e3 or (i:uidation of the re(evant business

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Business Valuation Practise Stan ar

C"APTER V

Such other factors that3 in the opinion of the ana(6st3 are appropriate for consideration

5.).5. ;eter%ine3 based on ite%s a, b, c and d3 8hether the conc(usion of va(ue shou(d ref(ect ,1- the resu(ts of one va(uation approach and %ethod or ,2- a co%bination of the resu(ts of %ore than one va(uation approach and %ethod.

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Business Valuation Practise Stan ar

C"APTER V

5.".

S)2/e@)en1 E,en1/

+he va(uation date is the specific date at 8hich the 'a(uer esti%ates the va(ue of the subject interest and conc(udes on his or her esti%ation of va(ue. =enera((63 the 'a(uer shou(d consider on(6 circu%stances e$isting at the va(uation date and events occurring up to the va(uation date. 2n event that occurs subse:uent to the va(uation date cou(d affect the va(ueD such an occurrence is referred to as a subsequent event. Subse:uent events are indicative of conditions that 8ere not kno8n or kno8ab(e at the va(uation date3 inc(uding conditions that arose subse:uent to the va(uation date. +he va(uation 8ou(d not be updated to ref(ect those events or conditions. >oreover3 the va(uation report 8ou(d t6pica((6 not inc(ude a discussion of those events or conditions because a va(uation is perfor%ed as of a point in ti%e ? the va(uation date ? and the events described in this subparagraph3 occurring subse:uent to that date3 are not re(evant to the va(ue deter%ined as of that date. !n situations in 8hich a va(uation is %eaningfu( to the intended user be6ond the va(uation date3 the events %a6 be of such nature and significance as to 8arrant disc(osure ,at the option of the 'a(uer- in a separate section of the report in order to keep users infor%ed. Such disc(osure shou(d c(ear(6 indicate that infor%ation regarding the events is provided for infor%ationa( purposes on(6 and does not affect the deter%ination of va(ue as of the specified va(uation date. +o conc(ude3 events subse:uent to the va(uation date shou(d not be taken into consideration 8hen va(uing business interests3 e$cept 8hen at (east one of the fo((o8ing conditions is true< +he subse:uent events 8ere reasonab(6 foreseeab(e as of the va(uation date.

+he subse:uent events are re(evant to the va(uation3 and appropriate adjust%ents are %ade to take into account the differences bet8een the facts and circu%stances on va(uation date and the date of such subse:uent events. Page ## of 62

Business Valuation Practise Stan ar

C"APTER V

+he subse:uent events are not used to arrive at the va(uation3 but on(6 as a %eans to confir% the va(ue a(read6 arrived at.

Subse:uent events %a6 be evidence of va(ue rather than as so%ething that affects va(ue.

5...

V#-)#1 (n D($).en1#1 (n

;ocu%entation is the principa( record of infor%ation obtained and ana(6Aed3 procedures perfor%ed3 va(uation approaches and %ethods considered and used3 and the conc(usion of va(ue. +he :uantit63 t6pe3 and content of docu%entation are %atters of the 'a(uer@s professiona( judg%ent. Sufficient docu%entation shou(d be retained for infor%ation re(ied upon in the va(uation process. !nc(usion of such infor%ation in the report satisfies this standard. ;ocu%entation %a6 inc(ude< !nfor%ation gathered and ana(6Aed to obtain an understanding of %atters that %a6 affect the va(ue of the subject interest ,para 5.2 2ssu%ptions and (i%iting conditions ,para 4. 2n6 restriction or (i%itation on the scope of the 'a(uer@s 8ork or the data avai(ab(e for ana(6sis ,para 4.4 Basis for using an6 valuation assumption during the va(uation engage%ent 'a(uation approaches and %ethods considered ,para 5.4 'a(uation approaches and %ethods used inc(uding the rationa(e and support for their use

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Business Valuation Practise Stan ar

C"APTER V

!f app(icab(e3 infor%ation re(ating to subse:uent events considered b6 the 'a(uer ,para 5." 9or an6 ru(e of thu%b used in the va(uation3 source,s- of data used3 and ho8 the ru(e of thu%b 8as app(ied ,para 5.4.4 Other docu%entation considered re(evant to the engage%ent b6 the 'a(uer +he 'a(uer shou(d retain the docu%entation for a period of ti%e sufficient to %eet the needs of app(icab(e (ega(3 regu(ator63 or other professiona( re:uire%ents for records retention.

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Business Valuation Practise Stan ar

C"APTER VI

CHAPTER VI REPORTING STANDARDS One of the fina( stages in the va(uation process is the co%%unication of the resu(ts of the va(uation to the c(ient or other user of the report. +he for% of an6 particu(ar report 8i(( depend on the nature of the engage%ent3 its purpose3 its findings and the needs of the decision?%akers 8ho receive and re(6 upon it. +he purpose of these standards is to estab(ish %ini%u% reporting criteria and to ensure consistenc6 and :ua(it6 of va(uation reports issued b6 'a(uers in !ndia. 2 va(uation report is a 8ritten or ora( co%%unication to the c(ient containing the conc(usion of va(ue or the ca(cu(ated va(ue of the subject interest. 0eports issued for purposes of certain controvers6 proceedings are e$e%pt fro% this reporting standard ,para ).4-. +he three t6pes of 8ritten reports that a 'a(uer %a6 use to co%%unicate the resu(ts of an engage%ent to esti%ate va(ue are< for a va(uation engage%ent3 a detai(ed report or a su%%ar6 reportD and for a ca(cu(ation engage%ent3 a ca(cu(ation report. F(' # V#-)#1 (n En&#&e.en1 ).1. De1# -ed Rep('1: +his report %a6 be used to co%%unicate the resu(ts of a va(uation engage%ent ,conc(usion of va(ue- in detai( ,para .1-. 6424 S)..#'8 Rep('1: +his report %a6 be used to co%%unicate the resu(ts of a va(uation engage%ent ,conc(usion of va(ue- in an abridged for% ,para .1-. 9or a va(uation engage%ent3 the deter%ination of 8hether to prepare a detai(ed report or a su%%ar6 report is based on the (eve( of reporting detai( agreed to b6 the 'a(uer and the c(ient.

F(' # C#-$)-#1 (n En&#&e.en1

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Business Valuation Practise Stan ar

C"APTER VI

). . C#-$)-#1 (n Rep('1: +his t6pe of report shou(d be used on(6 to co%%unicate the resu(ts of a ca(cu(ation engage%ent ,ca(cu(ated va(ue-D it shou(d not be used to co%%unicate the resu(ts of a va(uation engage%ent ,conc(usion of va(ue- ,para .2-. 0eports shou(d be carefu((6 prepared3 co%%unicate the resu(ts and identif6 the infor%ation re(ied upon in the va(uation process. +he 8ording used in the report shou(d effective(6 co%%unicate i%portant thoughts3 %ethods and reasoning3 as 8e(( as identif6 the supporting docu%entation in a si%p(e and concise %anner3 so that the user of the report can rep(icate the process fo((o8ed b6 the 'a(uer. Ehen va(uation reports are trans%itted e(ectronica((63 'a(uer sha(( take reasonab(e steps to protect the integrit6 of the dataCte$t in the report and to ensure that no errors occur in trans%ission. Soft8are shou(d provide for securit6 of trans%ission. +he 'a(uer shou(d indicate in the va(uation report the restrictions on the use of the report ,8hich %a6 inc(ude restrictions on the users of the report3 the uses of the report b6 such users3 or both-. 6.4. Rep('1 n& E!e.p1 (n 0(' Ce'1# n C(n1'(,e'/8 P'($eed n&/ 2 va(uation perfor%ed for a %atter before a court3 an arbitrator3 a %ediator or other faci(itator3 or a %atter in a govern%enta( or ad%inistrative proceeding3 is e$e%pt fro% the reporting provisions of this Standard. +he reporting e$e%ption app(ies 8hether the %atter proceeds to tria( or sett(es. +he e$e%ption app(ies on(6 to the reporting provisions of this Standard. +he deve(op%enta( provisions of the Standard ,chapter 'sti(( app(6 8henever the 'a(uer e$presses a conc(usion of va(ue or a ca(cu(ated va(ue. F('. #nd C(n1en1/ (0 Rep('1 6.". De1# -ed V#-)#1 (n Rep('1

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Business Valuation Practise Stan ar

C"APTER VI

+he detailed report shall provide sufficient infor%ation to per%it intended users to understand the data3 reasoning3 and ana(6ses under(6ing the 'a(uer@s conc(usion of va(ue. 2 detai(ed report shou(d inc(ude3 as app(icab(e3 the fo((o8ing sections< 4etter of +rans%itta( +ab(e of contents !ntroduction Sources of infor%ation 2na(6sis of the subject entit6 and re(ated nonfinancia( infor%ation 9inancia( state%entCinfor%ation ana(6sis 'a(uation approaches and %ethods considered 'a(uation approaches and %ethods used 'a(uation adjust%ents /on operating assets3 non operating (iabi(ities3 and e$cess or deficient operating assets ,if an6 0epresentation of the 'a(uer 0econci(iation of esti%ates and conc(usion of va(ue Lua(ifications of the 'a(uer 2ppendices and e$hibits

2 brief insight of the contents of each section is produced in the fo((o8ing paragraphs. !t %a6 be positioned in the bod6 of the report or e(se8here in the report at the discretion of the 'a(uer.

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Business Valuation Practise Stan ar 6.".". In1'(d)$1 (n

C"APTER VI

+his section shou(d provide an overa(( description of the va(uation engage%ent. +he infor%ation in the section shou(d be sufficient to enab(e the intended user of the report to understand the nature and scope of the va(uation engage%ent3 as 8e(( as the 8ork perfor%ed. +he introduction section %a6 inc(ude3 a%ong other things3 the fo((o8ing infor%ation< !dentit6 of the c(ient Purpose and intended use of the va(uation !ntended users of the va(uation !dentit6 of the subject entit6 ;escription of the subject interest Ehether the business interest has o8nership contro( characteristics and its degree of %arketabi(it6 'a(uation date 0eport date +6pe of report issued 2pp(icab(e pre%ise of va(ue 2pp(icab(e standard of va(ue 2ssu%ptions and (i%iting conditions ,a(ternative(63 these often appear in an appendi$ 2n6 restrictions or (i%itations in the scope of 8ork or data avai(ab(e for ana(6sis

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Business Valuation Practise Stan ar

C"APTER VI

2n6 h6pothetica( conditions used in the va(uation engage%ent3 inc(uding the basis for their use

!f the 8ork of a specia(ist 8as used in the va(uation engage%ent3 a description of ho8 the specia(ist@s 8ork 8as re(ied upon

;isc(osure of subse:uent events in certain circu%stances 2n6 app(ication of the jurisdictiona( e$ception 2n6 additiona( infor%ation the 'a(uer dee%s usefu( to enab(e the user,s- of the report to understand the 8ork perfor%ed

!f the above ite%s are not inc(uded in the introduction3 the6 shou(d be inc(uded e(se8here in the va(uation report. 6.".4. S()'$e/ (0 In0('.#1 (n +his section of the report shou(d identif6 the re(evant sources of infor%ation used in perfor%ing the va(uation engage%ent. !t %a6 inc(ude3 a%ong other things3 the fo((o8ing< a. 9or va(uation of a business3 business o8nership interest3 or securit63 8hether and to 8hat e$tent the subject entit6@s faci(ities 8ere visited b. 9or va(uation of an intangib(e asset3 8hether the (ega( registration3 contractua( docu%entation3 or other tangib(e evidence of the asset 8as inspected c. /a%es3 positions3 and tit(es of persons intervie8ed and their re(ationships to the subject interest d. 9inancia( infor%ation ,Para ).1.2.1 & ).1.2. e. +a$ infor%ation ,Para ).1.2.2f. !ndustr6 data g. >arket data Page $1 of 62

Business Valuation Practise Stan ar h. #cono%ic data i. Other e%pirica( infor%ation

C"APTER VI

j. 0e(evant docu%ents and other sources of infor%ation provided b6 or re(ated to the entit6

).1.2.1.

!f the financia( infor%ation inc(udes financia( state%ents that 8ere reported on ,audit3 revie83 co%pi(ation3 or attest engage%ent- b6 the 'a(uer@s fir%3 the va(uation report shou(d disc(ose this fact and the t6pe of report issued. !f the 'a(uer or the 'a(uer@s fir% did not audit3 revie83 co%pi(e3 or attest to the financia( infor%ation3 the 'a(uer shou(d so state and shou(d a(so state that the 'a(uer assu%es no responsibi(it6 for the financia( infor%ation.

).1.2.2.

+he financia( infor%ation %a6 be derived fro% or %a6 inc(ude infor%ation derived fro% ta$ returns. Eith regard to such derived infor%ation and other ta$ infor%ation3 the 'a(uer shou(d identif6 the ta$ returns used and an6 e$isting re(ationship bet8een the 'a(uer and the ta$ preparer. !f the 'a(uer or the 'a(uer@s fir% did not audit3 revie83 co%pi(e3 or attest to an6 financia( infor%ation derived fro% ta$ returns that is used during the va(uation engage%ent3 the 'a(uer shou(d so state and shou(d a(so state that the 'a(uer assu%es no responsibi(it6 for that derived infor%ation.

).1.2. .

!f the financia( infor%ation used 8as derived fro% financia( state%ents prepared b6 %anage%ent that 8ere not the subject of an audit3 revie83 co%pi(ation3 or attest engage%ent3 the va(uation report shou(d< !dentif6 the financia( state%ents State that3 as part of the va(uation engage%ent3 the 'a(uer did not audit3 revie83 co%pi(e3 or attest to the financia( infor%ation and assu%es no responsibi(it6 for that infor%ation.

Page $2 of 62

Business Valuation Practise Stan ar

C"APTER VI

6.".7. An#-8/ / (0 1*e S)26e$1 En1 18 #nd Re-#1ed N(n0 n#n$ #- In0('.#1 (n +he 'a(uer shou(d inc(ude a description of the re(evant nonfinancia( infor%ation (isted and discussed in para 5.2.1. 6.".4. F n#n$ #- S1#1e.en1 A In0('.#1 (n An#-8/ / +his section shou(d inc(ude a description of the re(evant infor%ation (isted in para 5.2. . Such description %a6 inc(ude< +he rationa(e under(6ing an6 nor%a(iAation or control adjustments to financia( infor%ation *o%parison of current perfor%ance 8ith historica( perfor%ance *o%parison of perfor%ance 8ith industr6 trends and nor%s3 8here avai(ab(e

6.".;. V#-)#1 (n App'(#$*e/ #nd Me1*(d/ C(n/ de'ed !n this section3 the 'a(uer shou(d identif6 the va(uation %ethods ,as discussed in para 5.4- used under each va(uation approach and the rationa(e for their use. +his section shou(d a(so identif6 the fo((o8ing for each of the three approaches ,if used-< Inco%e approach<

*o%position of the representative benefit strea% >ethod,s- used3 and a su%%ar6 of the %ost re(evant risk factors considered in se(ecting the appropriate d /$()n1 '#1e3 the capita(iAation rate3 or both

2sset?based approach or cost approach<

Asset&based approach' 2n6 adjust%ents %ade b6 the 'a(uer to the re(evant ba(ance sheet data Page $! of 62

Business Valuation Practise Stan ar

C"APTER VI

Cost approach' +he t6pe of cost used3 ho8 this cost 8as esti%ated3 and3 if app(icab(e3 the for%s of and costs associated 8ith depreciation and obso(escence used under the approach and ho8 those costs 8ere esti%ated

>arket approach<

9or the =uide(ine pub(ic co%pan6 %ethod< +he se(ected =uide(ine co%panies and the process used in their se(ection +he pricing %u(tip(es used3 ho8 the6 8ere used3 and the rationa(e for their se(ection. !f the pricing %u(tip(es 8ere adjusted3 the rationa(e for such adjust%ents

9or the =uide(ine transactions %ethod< the sa(es transactions and pricing %u(tip(es used3 ho8 the6 8ere used3 and the rationa(e for their se(ection. !f the pricing %u(tip(es 8ere adjusted3 the rationa(e for such adjust%ents

Ehen a ru(e of thu%b is used in co%bination 8ith other %ethods3 the va(uation report shou(d disc(ose the source,s- of data used and ho8 the ru(e of thu%b 8as app(ied. 6.".6. V#-)#1 (n Ad6)/1.en1/ +his section shou(d ,a- identif6 each va(uation adjust%ent considered and deter%ined to be app(icab(e3 for e$a%p(e3 discount for (ack of %arketabi(it63 , b- describe the rationa(e for using the adjust%ent and the factors considered in se(ecting the a%ount or percentage used3 and ,c- describe the pre?adjust%ent va(ue to 8hich the adjust%ent 8as app(ied as discussed in para 5.5. 6.".B. N(n (pe'#1 n& A//e1/ #nd E!$e// Ope'#1 n& A//e1/

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C"APTER VI

Ehen the subject interest is a business3 business o8nership interest3 or securit63 the va(uation report shou(d identif6 an6 re(ated non operating assets3 non operating (iabi(ities3 or e$cess or deficient operating assets and their effect on the va(uation. 6.".C. Rep'e/en1#1 (n (0 1*e V#-)e' #ach 8ritten report shou(d contain the representation of the 'a(uer. +he representation is the section of the report 8herein the 'a(uer su%%ariAes the factors that guided his or her 8ork during the engage%ent. #$a%p(es of these factors inc(ude the fo((o8ing< a. +he ana(6ses3 opinions3 and conc(usion of va(ue inc(uded in the va(uation report are subject to the specified assu%ptions and (i%iting conditions3 and the6 are the persona( ana(6ses3 opinions3 and conc(usion of va(ue of the 'a(uer. b. +he econo%ic and industr6 data inc(uded in the va(uation report have been obtained fro% various printed or e(ectronic reference sources that the 'a(uer be(ieves to be re(iab(e ,an6 e$ceptions shou(d be noted-. +he 'a(uer has not perfor%ed an6 corroborating procedures to substantiate that data. c. +he parties for 8hich the infor%ation and use of the va(uation report is restricted are identifiedD the va(uation report is not intended to be and shou(d not be used b6 an6one other than such parties. d. +he 'a(uer used the 8ork of one or %ore outside specia(ists to assist during the va(uation engage%ent. !f the 8ork of such a specia(ist 8as used3 the specia(ist shou(d be identified. +he va(uation report shou(d inc(ude a state%ent identif6ing the (eve( of responsibi(it63 if an63 the 'a(uer is assu%ing for the specia(ist@s 8ork. e. +he 'a(uer has no ob(igation to update the report or the opinion of va(ue for infor%ation that co%es to his or her attention after the date of the report.

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f. +he 'a(uer and the person,s- assu%ing responsibi(it6 for the va(uation shou(d sign the representation in their o8n na%e,s-. +he na%es of those providing significant professiona( assistance shou(d be identified. g. +he 'a(uer sha(( confir% that< +he state%ents of fact presented in the report are correct to the best of kno8(edge of va(uer +he reported ana(6ses3 opinion and conc(usions are (i%ited on(6 b6 the reported assu%ptions and (i%iting conditions. 5e or she has no bias 8ith respect to the subject of this report or to the parties invo(ved 8ith this assign%ent. 5e or she has no ,or if so3 a specified- present or prospective interest in the subject business or has no persona( interest in the parties invo(ved. 5is or her fee is not contingent upon an action or event resu(ting fro% the ana(6ses3 opinions or conc(usions in3 or the use of3 this report. T*e ,#-)#1 (n en&#&e.en1 +#/ pe'0('.ed n #$$('d#n$e + 1* 1*e Ind #n In/1 1)1e (0 C*#'1e'ed A$$()n1#n1/ B)/ ne// V#-)#1 (n P'#$1 /e S1#nd#'d. 5e or she has necessar6 ski((s and co%petence to perfor% the engage%ent to esti%ate va(ue. 6.".9. Rep'e/en1#1 (n/ Re&#'d n& In0('.#1 (n P'(, ded 1( 1*e V#-)e' !t %a6 be appropriate for the 'a(uer to obtain 8ritten representations fro% the %anage%ent ,or c(ient- regarding infor%ation that the subject entit6@s %anage%ent provides to the 'a(uer for purposes of his or her perfor%ing the va(uation engage%ent. +he decision 8hether to obtain a representation (etter is a %atter of judg%ent for the 'a(uer.

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A Sample (anagement )epresentation #etter is annexed in $Appendix D for the benefit of valuers. %he given (anagement )epresentation letter is a sample only which can be used by the Valuer, but is not required, for ta!ing representation from the management. It needs to be modified according to the requirements of particular engagement. 6."."D. E)#- 0 $#1 (n/ (0 1*e V#-)e' +he report shou(d contain infor%ation regarding the :ua(ifications of the 'a(uer. 6."."". C(n$-)/ (n (0 V#-)e

+his section shou(d present a reconci(iation of the 'a(uer@s esti%ate or various esti%ates of the va(ue of the subject interest. !n addition to a discussion of the rationa(e under(6ing the conc(usion of va(ue3 this section shou(d inc(ude the fo((o8ing or si%i(ar state%ents< a. 2 va(uation engage%ent 8as perfor%ed3 inc(uding the subject interest and the va(uation date. b. +he ana(6sis 8as perfor%ed so(e(6 for the purpose described in this report3 and the resu(ting esti%ate of va(ue shou(d not be used for an6 other purpose. c. +he va(uation engage%ent 8as conducted in accordance 8ith the Business 'a(uation Practise Standard of the !nstitute of *hartered 2ccountants of !ndia. d. 2 state%ent that the esti%ate of va(ue resu(ting fro% a va(uation engage%ent is e$pressed as a conc(usion of va(ue. e. +he scope of 8ork or data avai(ab(e for ana(6sis is e$p(ained3 inc(uding an6 restrictions or (i%itations. f. 2 state%ent describing the conc(usion of va(ue3 either a sing(e a%ount or a range.

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g. +he conc(usion of va(ue is subject to the assu%ptions and (i%iting conditions ,para 4. - and to the 'a(uer@s representation ,para ).1.&-. h. +he date of the va(uation report is inc(uded. i. +he 'a(uer has no ob(igation to update the report or the conc(usion of va(ue for infor%ation that co%es to his or her attention after the date of the report. 6."."4. Append $e/ #nd E!* 2 1/

2ppendices or e$hibits %a6 be used for re:uired infor%ation or infor%ation that supp(e%ents the detai(ed report. Often3 the assu%ptions and (i%iting conditions and the 'a(uer@s representation are provided in appendices to the detai(ed report. An example of report language that could be used is given in $Appendix E. %he given report language is a sample only which can be used by Valuer, but is not required, when reporting the results of a valuation engagement. 6.4. S)..#'8 V#-)#1 (n Rep('1

2 su%%ar6 report is structured to provide an abridged version of the infor%ation that 8ou(d be provided in a detai(ed report3 and therefore3 need not contain the sa%e (eve( of detai( as a detai(ed report. 5o8ever3 a su%%ar6 report shou(d3 at a %ini%u%3 inc(ude the fo((o8ing< !dentification of the subject being va(uedD ;escription of the interest being va(uedD O8nership siAe3 nature3 restrictions and agree%entsD 'a(uation dateD 0eport dateD Purpose and use of the va(uationD Page $& of 62

Business Valuation Practise Stan ar !ntended users of the va(uation +6pe of report issued ;efinition of the standard of va(ueD !dentification of the pre%ise of va(ueD 'a(uation approaches and %ethod,s- uti(iAed b6 the 'a(uerD 5istorica( financia( state%ent su%%aries3 8hen app(icab(eD

C"APTER VI

!dentification of the assu%ptions3 (i%iting conditions and scope (i%itationsD 0e(iance on a specia(istD Murisdictiona( e$ceptions and re:uire%entsD 4i%itations on use of the reportHa(( va(uation services var6 as to specific assu%ptions3 (i%iting conditions and scope3 therefore3 the 'a(uer %ust identif6 %ateria( %atters consideredD

Sources of infor%ationD 2 state%ent of 9inancia( !nterestD Ehether or not 'a(uer is ob(igated to update the reportD ;isc(osure of an6 contingenc6 feeD Lua(ifications of 'a(uerD and ;isc(osure of subse:uent events in certain circu%stances 0esponsib(e 'a(uer signatureHthe 'a(uer 8ho has pri%ar6 responsibi(it6 for the deter%ination of va(ue %ust sign or be identified in the reportD

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2ppendices or e$hibits %a6 be used for re:uired infor%ation or infor%ation that supp(e%ents the su%%ar6 report. Often3 the assu%ptions3 (i%iting conditions3 and the 'a(uer@s representation are provided in appendices to the su%%ar6 report. 6.7. C#-$)-#1 (n Rep('1

2 ca(cu(ation report is the on(6 report that shou(d be used to report the resu(ts of a ca(cu(ation engage%ent. +he report shou(d state that it is a ca(cu(ation report. +he ca(cu(ation report shou(d inc(ude the representation of the 'a(uer si%i(ar to that given in para ).1.& of detai(ed va(uation report but adapted for a ca(cu(ation engage%ent. +he ca(cu(ation report shou(d identif6 an6 h6pothetica( conditions used in the ca(cu(ation engage%ent3 inc(uding the basis for their use3 an6 app(ication of the jurisdictiona( e$ception3 and an6 assu%ptions and (i%iting conditions app(icab(e to the engage%ent. !f the 'a(uer used the 8ork of a specia(ist3 the 'a(uer shou(d describe in the ca(cu(ation report ho8 the specia(ist@s 8ork 8as used and the (eve( of responsibi(it63 if an63 the 'a(uer is assu%ing for the specia(ist@s 8ork. +he ca(cu(ation report %a6 a(so inc(ude a disc(osure of subse:uent events in certain circu%stances. 2ppendices or e$hibits %a6 be used for re:uired infor%ation or infor%ation that supp(e%ents the ca(cu(ation report ,para ).1.12-. Often3 the assu%ptions and (i%iting conditions and the 'a(uer@s representation are provided in appendices to the ca(cu(ation report. +he ca(cu(ation report shou(d inc(ude a section su%%ariAing the ca(cu(ated va(ue. +his section shou(d inc(ude the fo((o8ing ,or si%i(ar- state%ents< *ertain ca(cu(ation procedures 8ere perfor%edD inc(ude the identit6 of the subject interest and the ca(cu(ation date. ;escribe the ca(cu(ation procedures and the scope of 8ork perfor%ed or reference the section,s- of the ca(cu(ation report in 8hich the ca(cu(ation procedures and scope of 8ork are described.

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;escribe the purpose of the ca(cu(ation procedures3 inc(uding that the ca(cu(ation procedures 8ere perfor%ed so(e(6 for that purpose and that the resu(ting ca(cu(ated va(ue shou(d not be used for an6 other purpose or b6 an6 other part6 for an6 purpose.

2 description of the business interest@s characteristics3 inc(uding 8hether the subject interest e$hibits contro( characteristics3 and a state%ent about the %arketabi(it6 of the subject interest.

+he esti%ate of va(ue resu(ting fro% a ca(cu(ation engage%ent is e$pressed as a ca(cu(ated va(ue.

2 genera( description of a ca(cu(ation engage%ent is given3 inc(uding that ,1a ca(cu(ation engage%ent does not inc(ude a(( of the procedures re:uired for a va(uation engage%ent and ,2- had a va(uation engage%ent been perfor%ed3 the resu(ts %a6 have been different.

+he ca(cu(ated va(ue3 either a sing(e a%ount or a range3 is described. +he date of the va(uation report is given. +he 'a(uer has no ob(igation to update the report or the ca(cu(ation of va(ue for infor%ation that co%es to his or her attention after the date of the report.

An example of report language that could be used for Calculation "ngagement is given in $Appendix F. %he given report language is a sample only which can be used by Valuer, but is not required, when reporting the results of a Calculation "ngagement.

E00e$1 ,e D#1e +his Standard app(ies to engage%ents to esti%ate va(ue accepted on or after the first da6 of 2pri( 2111. #ar(ier app(ication of the Standard b6 the 'a(uers is encouraged.

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