Transcript The Value of ‘Valuation’

The Value of ‘Valuation’
Rajiv Krishnan, DGM
State Bank of India
Zonal Office, Vadodara Gujarat India
Prepared by: Dr Rajesh Khajuria, TEAM Projects & Consultants, Vadodara
www.TeamPro.org
Indian Economy
• Indian economy is growing @ 8% plus p.a.,
likely to touch 10% over next few years.
• India is one of the top 5 produces or processors
of Textiles, Diamonds, Tea and Manpower.
• Indian economy is one of the oldest, and
youngest economies in the world, with half a
billion young people.
Indian Economy
• India’s exports are rising @ 25%, and imports @
34% p.a., reaching total export-import of about
US$ 300 billion.
• Indian professionals are more ethical, and deliver
upto 3 times more productivity at upto three
times less cost of developed nation – hence
preferred the world over.
• How can you benefit as a Valuer?
– My Answer is: Knowledge, Practice and Ethics.
Institutions
• Institution of Valuers, New Delhi
– www.InstitutionOfValuers.org
• Practicing Valuers Association of India
– www.pavi.info
• International Valuation Standards Committee’ UK
(www.ivsc.org)
– India represented by PAVI.
• International institutions of Valuers are
functioning in major countries.
• Valuers are also called ‘Appraisers’ in The USA.
4 Valuation Practice
Four Practices of Valuation:
•
•
•
•
Determination of Value of ‘Assets’.
Forecasting of the ‘Earning Power’ of Assets.
Estimation of the ‘Cost’ of Asset.
Determining ‘Non-monetary Benefits’ or
characteristics that contribute to Value.
Value, Forecasting & Cost of Asset
•
•
•
In ‘Valuation’ and in Forecasting of ‘Earning
Power’, the word ‘Asset’ is used to describe the
rights to the future benefits of something
owned or possessed to the exclusion of other
persons.
The "something owned" may be tangible,
intangible or both.
In a ‘Cost’ estimation, the word ‘Asset’ is used
to describe the "something owned" without
regard to its ownership.
Non-monetary Benefits
•
•
The rendering of judgments as to age,
remaining life, condition, quality, or
authenticity of physical assets, amenities, based
on:
An estimate of the amount of a natural
resources, population increase, nature of
market, rate of absorption, etc.
Principles of Valuation Practice and
Code of Ethics
• Inform those who use the services of
Valuers as to what, in the opinion of
Association, constitutes competent and
ethical valuation practice:
– Serve as a guide to its own members in
achieving competency in valuation practice
and in adhering to ethical standards.
Principles of Valuation Practice and
Code of Ethics
– Aid in the accomplishment of the purposes of the
Association, which include :
– (a) Fostering the age of valuation education,
– (b) Improvement and development of modern
valuation techniques,
– (c) Encouragement of sound professional practices,
– (d) Establishment of criteria of sound performance for
use of employers and staff of valuers,
– (e) Enforcement of ethical conduct and practice by its
members.
Knowledge & Practice
• Individual Skills, Competence, and depth
of Ethical understanding in valuation
practice.
• Reputation of members.
• Registration Certificates of Institution or
Association of Valuers.
Unethical Practices
• Contingent Fees (based on proposed value of
assets) are unethical, unless specified and agreed
by the client or third party (like Bank).
• Valuer should not be interested in the property to
be valued, unless disclosed and agreed by the
client or third party.
• Signature forgery or unsigned valuation reports.
• Advocacy of self or valuation services offered.
• Advertising and solicitation of business.
Unethical Practices
• Unconsidered or preliminary report on
valuation without going into required
details.
• Deviation from standards of valuation.
• Unprofessional conduct.
• Conviction in Court of Law.
Valuation Report
• Description of Asset to be valued.
• Statement of Purpose of valuation.
• Statement of Contingent and Limiting
conditions on findings of valuation.
• Methodology used.
• Statement of Valuer’s Disinterestedness.
• Signature of Valuer, and Dissenting
Opinions if any.
Valuer’s 5 Obligations
•
•
•
•
•
To client.
To third party (like Bank).
Avoid giving false numerical results.
Competency and Ethical Practice.
Character of Valuation Practice..
In a Nut-shell
• Valuer should have ‘Thirst for Valuation’.
• Collaboration with other professionals like
Chartered Accountants (CA / CS / ICWA / CE
etc) and Certified Management Consultants
(CMCs) is encouraged for best practices.
• Valuation Standards and Ethics must be observed
for long term success of this important
profession.
Thank You!