BackGovt panel readies valuation standards for listed, unlisted firms
The drafting of valuation standards is in line with the government's thought process of having more checks for third party fiduciaries
Premium
Mumbai: The ministry of corporate affairs (MCA) is in the process of drafting valuation standards, or a set of norms that would define how listed and unlisted companies and businesses should be valued, according to two people with direct knowledge of the matter, one of whom is a member of the committee set up for the purpose.
Unlike accounting and auditing, there are no Indian standards for valuation and typically firms value businesses on an ad hoc basis due to lack of uniform standards.
“MCA has formed a committee or working group with representatives from all financial sectors including Reserve Bank of India, Securities and Exchange Board of India (Sebi), MCA, Insolvency and Bankruptcy Board of India (IBBI), and the insurance regulator, chaired by a professor from IIM (Indian Institute of Management)-Bangalore," said one of the two people quoted above on condition of anonymity.
This is in line with the government’s thought process of having more checks for third-party fiduciaries such as chartered accountants, auditors and valuation firms.
“Most of the valuation reports come attached with many disclaimers such as ‘for internal use’, ‘it is only a fair opinion’ which makes it difficult to pin responsibility. With uniform valuation standards this may change," said the committee member mentioned above.
“The committee was constituted last week. The members have been given six months’ time to come up with valuation standards," he added.
While the government on 1 March approved setting up of the National Financial Reporting Authority (NFRA) as a watchdog for the auditing community, it had made IBBI the regulator for valuation firms on 23 October last year. Section 247 of the Companies Act requires that valuation of any property, stocks, shares, debentures, securities, assets or net worth of a company or its liabilities needs to be done by a valuer with the requisite qualifications and experience who needs to be registered with IBBI.
On 18 October, the MCA notified norms for registered valuers, adding that in the absence of Indian valuation standards, the registered valuer will need to value businesses based on internationally accepted valuation methods and methodology adopted by a registered valuers’ organisation.
“In the notification the MCA had proposed that it will constitute a group called the “committee to advise on valuation matters" which will make recommendations on formulation and laying down of Indian valuation standards and policies for compliance by companies and registered valuers. This committee is in line with that proposal," said the first of the two people cited above.
The need for uniform valuation standards was felt as the Serious Fraud Investigation Office (SFIO) in a report in 2017 on the loan default by Kingfisher Airlines (KFA) found that the valuation firm had followed an inconsistent approach in valuing the business which was already making losses and had defaulted on some of the loans granted to it by a State Bank of India (SBI)-led consortium.
In a report on 13 January 2017, proxy advisory firm Stakeholder Empowerment Services (SES) said that most of the valuation reports of listed companies were meaningless and contained information readily available on the internet.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
