Business Valuation Report

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  • Topic: Business valuation, Value, Valuation
  • Pages : 57 (12356 words )
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  • Published : February 13, 2013
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CORPORATE AFFAIRS STANDARD (CAS) -1
(Issued by the Institute of Chartered Accountants of India)

Business Valuation

Page 1 of 62

Business Valuation Practise Standard TABLE OF CONTENTS CHAPTER I - PREAMBLE 1.1 Background……………………………………………………………………… …………………4

1.2 Purpose & Objective of the Standard…………………………………………………….5 1.3 Introduction and Scope of the Standard………………………………………………....7 1.4 Exceptions from the Standard…………………………………………………………….9

CHAPTER II – QUALITATIVE AND ETHICAL STANDARDS……………………..11

CHAPTER III – VALUATION SERVICES 3.1. Valuation Engagement……………………………………………………………..…….16 3.2. Calculation Engagement………………………………………………………..………..17

CHAPTER IV - OVERALL ENGAGEMENT CONSIDERATIONS

4.1 Terms of Engagement (TOE)……………………………………………………………...18 4.2 Nature and Risk in Engagement……………………………………….…………………20 4.3 Assumption, Limiting conditions.………………………………………………………..21 4.4 Scope Restriction and limitations………………………………………………………...21 4.5 Hypothetical Conditions…………………………………………………………………..22 4.6 Using work of expert………………………………………………………………...…….22

CHAPTER V – DEVELOPMENT STANDARDS 5.1. Valuation Bases (standard of Value) and Premise………………………………….…25 5.2. Analysis of the subject interest…………………………………………………………..26 5.3. Financial Statement Adjustments……………………………………………………….31 5.4. Applying valuation approaches and methods…………………………………………32 5.5. Valuation adjustments……………………………………………………………..……..41 5.6. Conclusion of value……………………………………………………………………....43 5.7. Subsequent Events………………………………………………………………………..46 5.8. Documentation……………………………………………………………………………47 Page 2 of 62

Business Valuation Practise Standard

CHAPTER VI – REPORTING STANDARDS…………………………………………….49 6.1. Detailed Valuation Report.………………………………………………………………51 6.2. Summary Valuation Report……….….………………………………………………….62 6.3. Calculation Report……….………………………………………………………………..64

EFFECTIVE DATE……….……………………………………………………………………66

Appendix A: Glossary of Business Valuation Terms…………………………………………………...67 B: Sample Valuation Engagement Letter…………………………………………………..102 C: Illustrative list of Assumptions & Limitations…………………………………………111 D: Sample Management Representation letter…………………………………………….115 E: Valuation report - Valuation engagement………………………………………………117 F: Valuation report - Calculation engagement…………………………………………….118

Page 3 of 62

Business Valuation Practise Standard

CHAPTER I

CHAPTER I – PREAMBLE

1.1. Background

During last decade profound changes have taken place in economic and business environment. The pace of growth has been phenomenal. The continuity in the growth in business and emergence of new generation entrepreneurs has tremendously increased participation of the public in the financial market and development of new financial products. Normal corollary to economic growth is the stakeholders’ curiosity and interest in valuations of their respective investee institutions or potential investments or divestments. All these have led to a greater demand for valuation services as investors and shareholders are interested in up-todate information on their assets. Since there are no standards for valuation in India, the valuation services lack the uniformity and generally accepted practices in valuation. A significant number of ICAI members are actively engaged in the valuation services. The business valuation discipline has advanced as a profession. Though there is a greater consensus amongst professional valuers with regard to generally accepted approaches, methods, and procedures. Nonetheless, numerous conceptual controversies still remain, even among the most prominent practitioners. Therefore, the need for education, training, regulation and standardization of the prevalent practices keeping in view the inherent limitations to the subject is necessary.

Business valuation is a complex process and it involves a multitude of factors ranging from financial matters to historical perspectives. It is a broad and technically challenging...
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