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Types of Valuation Reports

Our Valuation Services

As a member of CAANZ Business Studio and in accordance with our code of ethics we are responsible for complying with Professional and Engagement Standards applicable to all New Zealand members of Chartered Accountants Australia and New Zealand "CAANZ". 


When performing a valuation service, we are required to gather sufficient and appropriate evidence by such means as inspection, inquiry, computation and analysis to provide reasonable grounds that our report and the conclusions or calculations therein are properly supported. 


In determining the extent and quality of evidence, we are required to exercise professional judgement considering the nature of the valuation, the type of valuation service, and the use to which the valuation report will be applied to. 


The following information describes the various types of valuations, in addition to outlining the differences.  We frequently tailor our approach, to meet our client’s needs.  Please feel free to discuss your requirements, the type of report, and the level of detail you require. 


Our Professional Standard Requirements

For valuation services, APES 225 and AES-2 are two standards we observe.


APES 225 contemplates the following three types of valuation reports:


  • Valuation Engagement means an engagement to perform a valuation and provide a valuation report where the valuer is free to employ the valuation approaches, valuation methods, and valuation procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the engagement available to the valuer at that time.


Where a valuer has agreed to provide a valuation engagement but during the course of performing the valuation engagement the valuer becomes aware of a limitation or restriction that, if it had been known at the time the engagement was entered into, would have made the engagement a limited scope valuation engagement then the valuation engagement will become a limited scope valuation engagement. 


The valuer concludes the value is in compliance with the engagement terms agreed.


  • Limited Scope Valuation Engagement means an engagement to perform a valuation and provide a valuation report where the scope of work is limited or restricted. The scope of work is limited or restricted where the valuer is not free, as the valuer would be but for the limitation or restriction, to employ the valuation approaches, valuation methods and valuation procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the engagement available to the valuer at that time, and it is reasonable to expect that the effect of the limitation or restriction on the estimate of value is material.


A limitation or restriction may be imposed by you the client, or it may arise from other sources or circumstances.  A limitation or restriction may be present and known at the outset of the engagement or may arise or become known during the course of a valuation engagement.


A limited scope valuation engagement may also be referred to as a “restricted scope valuation engagement” or an “indicative valuation engagement”.


The valuer concludes the value in compliance with the engagement terms agreed.


  • Calculation Engagement means an engagement to perform a valuation and provide a valuation report where:

    • The valuer and the client agree on the valuation approaches, valuation methods and valuation procedures the valuer will employ. 

    • The valuer calculates the value in compliance with the engagement terms agreed.

    • A calculation engagement does not include all the valuation procedures required for a valuation engagement, and if a valuation engagement had been performed, the results may produce a different result.


The process of a Calculation Engagement generally: 

  • Does not include:

    • Multiple valuation approaches or methods; and

    • A site visit or interview with management as it is restricted or prohibited.

  • Includes:

    • Restrictions are placed on the intended users of the report.

  • Has or Is:

    • Limited information available, which may eliminate the use of one or more valuation methods.

    • Limited information available, which may limit the qualitative analysis typically performed, examples of such exclusions may include:

      • Competitor and industry analysis

      • A detailed assessment of the business by utilising SWOT or PESTEL approaches

    • Reliant upon specific information or assumptions as provided or instructed by you.

 

  • Value Analysis means an engagement to perform a calculated analysis of value and provide an analysis report. This valuation service is not defined by either professional standard, but often requested by New Zealand clients.


The valuer calculates the value in compliance with the engagement terms agreed.


A Value Analysis is an informal, ad hoc analysis.  It is a cost-effective solution for those who are focused on the resulting estimate of value as opposed to requiring a definitive/concluded assessment of value (as achieved in a Valuation Engagement). 


Remember, if a valuation engagement had been performed, the results may produce a different result.


A Value Analysis generally does not include all the valuation procedures required for a valuation engagement.  A Value Analysis generally:

  • Does not include:

    • Competitor and industry analysis, and a detailed assessment of the business by utilising SWOT or PESTEL approaches;

    • Multiple valuation approaches or methods; and

  • May include (depending on your instructions)

    • A site visit or interview with management (as it is restricted or prohibited).

  • Includes:

    • Restrictions on the intended users of the report;

    • For Income Based Assessments

      • analysis of financial performance,

      • determination of a suitable multiple, and

      • analysis of financial position.

    • For Asset Based Assessments

      • analysis of financial reports, and

      • adoption of a third-party valuer’s assessment of market value of assets in conjunction with analysis of market value of assets and liabilities.

  • Has or Is:

    • Limited information available which may eliminate the use of one or more valuation methods;

    • Limited information available which may limit the qualitative analysis typically performed; and

    • Reliant upon specific information or assumptions as provided or instructed by you.

 

Uses for a Calculation Engagement or Value Analysis

Valuation Engagements can be costly and lengthy, whereas Calculation Engagements or Value Analysis Reports are useful where a comprehensive less costly report is required.


Before deciding which type of report, you require, we recommend you discuss with us how you intend to use the report. 


Common examples for using a Calculation Engagement or Value Analysis, as opposed to a Valuation Report, include:

Negotiations where you have a particular value in mind and are looking to sense check

  • Relationship Property Settlements – Value Analysis can be useful where parties to a relationship property settlement are looking to negotiate a settlement amicably.  If the settlement process was to proceed to a hearing, arbitration or trial, the calculation of value will need to be enhanced into a Valuation Report.

  • Transactions or Potential transactions – In many instances, you (management teams, directors, or owners) are wanting to understand potential value to facilitate planning, buy-ins, or to test their perception of the value of the business or company.

  • Tax Compliance – To meet the market value test between associated parties.

  • Benchmarking – you (management teams, directors, or owners) are wanting to understand potential value to monitor their achievements in business growth.

Before Business Studio agrees to undertake a Calculation Engagement or Value Analysis, we will want to agree with you that:

  • you understand the limitations of such an approach;

  • you accept you are familiar with the business and the operating environment;

  • you accept if there is a need for our Written Report to be relied on by third parties, including the Court, that we recommend a Share Valuation be undertaken in accordance with CAANZ Independent Business Valuation Engagements; and

  • you accept we will agree with you in advance who the report may be released to.


Valuation Service Differences

A summary of the different types of valuation services described previously are summarised below. 



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