The government’s move to regulate the business of corporate valuation through a Valuation Professional Bill that will be introduced in the forthcoming monsoon session of Parliament has already created a debate among the people it seeks to regulate with some—including the head of the professional body of accountants—opposing it, and others welcoming it.
Most valuations—the process involves valuing equity, debt, tangible and intangible assets, and entire enterprises and is usually the precursors to initial public offerings or mergers and acquisitions—are conducted by large audit firms. It isn’t known whether the Bill will give the government, or the regulator it seeks to create, powers to oversee specific valuation exercises or make it mandatory for it to sign offon them.
The Bill seeks to create a council of valuation professionals of India that will regulate all valuation professionals. According to a concept paper that the Institute of Chartered Accountants of India (ICAI), the Institute of Company Secretaries of India (ICSI) and the Institute of Costs and Works Accountants of India (ICWAI), professional bodies of the three professions, are working on, the council will comprise two members from each of the bodies and five other members from government recognised institutes or bodies.
The council is to set standards for valuation professionals, train them, issue qualifying norms for individuals to become valuation professionals, and control and monitor professionals.
A senior official at the ministry of company affairs, which is steering the Bill, said once the concept paper is received, the ministry would invite comments from the public. “The whole process will take about two months,” after which “the ministry will finalize the Bill,” added the official who did not wish to be identified. Ironically, the head of one of the professional bodies working on the concept note doesn’t think the council is a good idea.
“All professionals dealing with valuation are already well versed with the subject. I don’t understand what is the need for a monitoring body and training for valuers,” said Sunil Talati, president, ICAI.
Some independent professionals agree with Talati.
“Today, all relevant professional courses have separate curriculum on valuation. Even MBA courses offer this, so why the council and the training,” said S.M. Sundaram, a practising advocate at the Delhi high court who also holds a company secretary’s degree.
However, the head of the professional body of company secretaries said the Bill would introduce a code of conduct for valuation professionals and ensure they acted responsibly. “So far, there is no apex regulatory and oversight mechanism nor is there any educational and training body for professional valuers so the Bill is much needed,” said Preeti Malhotra, president, ICSI.
Harinderjit Singh, a partner at PriceWaterhouse, an audit firm that is part of Pricewaterhouse Coopers India, added that the government wanted to make valuers more responsible because “mergers and acquisitions” are increasingly playing an important role in business and “valuation is core to such activities.” He added that the profession was very much in need of regulation.
The concept paper suggests that those violating the guidelines set by the council be penalized with the maximum penalty being Rs500,000. According to it, penalties will also be imposed if a valuer discloses confidential information or is negligent while issuing public statements or carrying out a due diligence exercise.