Professional Valuation

Definition

Professional Valuation refers to the objective assessment or estimation of the value of an asset on a company’s balance sheet or prospectus, conducted by an individual who possesses the requisite professional qualifications. The qualification required varies depending on the asset type—for example, a qualified surveyor for real estate valuation and a qualified accountant for valuing non-listed shares.

Examples

1. Real Estate Valuation:

   • A company owns several office buildings. To list these assets on its balance sheet, it engages a qualified surveyor to assess the market value of the properties.

2. Valuing Unlisted Shares:

   • A private company seeking investments needs to quantify the value of its unlisted shares. A qualified accountant performs a detailed valuation based on financial statements and market conditions.

3. Machinery and Equipment:

   • A manufacturing firm needs to value its specialized machinery for insurance and reporting purposes. A professional appraiser with expertise in industrial equipment is brought in to conduct the valuation.

Frequently Asked Questions (FAQs)

What is the purpose of a professional valuation?

A professional valuation aims to provide an unbiased, accurate estimation of an asset’s value, ensuring reliability in financial statements and aiding in decision-making and compliance with legal and regulatory requirements.

Who can perform a professional valuation?

Individuals with qualified expertise relevant to the asset in question. For example, a certified surveyor can value real estate, while a qualified accountant or a financial analyst may value unlisted shares.

What are the benefits of obtaining a professional valuation?

Benefits include accurate financial reporting, enhanced credibility with investors, compliance with regulatory standards, and informed decision-making for mergers, acquisitions, insurance, and tax purposes.

How often should a professional valuation be conducted?

The frequency depends on the type of asset and the company’s policies, but generally, valuations are done annually, during significant transactions or when mandated by regulatory requirements.

What standards guide professional valuations?

Professional valuations often adhere to standards set by bodies such as the International Valuation Standards Council (IVSC), providing consistency and reliability in valuation practices.

Related Terms and Definitions

1. International Valuation Standards Council (IVSC):

   • An organization that develops and promulgates global standards for valuation, ensuring consistency, transparency, and credibility in the valuation process.

2. Market Value:

   • The estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction.

3. Fair Value:

   • The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

4. Net Asset Value (NAV):

   • The value per share of a fund, calculated as the total value of the fund’s assets minus its liabilities, divided by the number of outstanding shares.

Online Resources

1. International Valuation Standards Council (IVSC)
2. American Society of Appraisers (ASA)
3. Royal Institution of Chartered Surveyors (RICS)

Suggested Books for Further Studies

1. “Valuation: Measuring and Managing the Value of Companies” by McKinsey & Company Inc., Tim Koller, Marc Goedhart, David Wessels:

   • A comprehensive guide on valuing companies, addressing both theoretical concepts and practical applications.

2. “The Valuation Handbook: Valuation Techniques from Today’s Top Practitioners” by Rawley Thomas and Benton E. Gup:

   • A detailed resource covering various approaches and techniques used by top valuation experts.

3. “Understanding Business Valuation: A Practical Guide to Valuing Small to Medium Sized Businesses” by Gary R. Trugman:

   • Focuses on the intricacies of valuing small to medium-sized businesses, including real-world case studies and methodologies.

Accounting Basics: Professional Valuation Fundamentals Quiz

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