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Valuations are required for buyers and sellers to determine transaction prices of businesses, assets, and liabilities, for regulatory purposes (such as for company law and foreign exchange management), for tax purposes and for financial reporting (accounting) purposes.

Valuations are relied upon by investors, lenders, regulators, taxmen, and auditors. Also, valuations vary based on their objective. Hence, it is of utmost importance that valuations be as accurate as possible considering the objectives of the valuation and the information available.

Valuation standards assist the valuers in ensuring uniformity in approach and quality of valuation output and in achieving consistency and comparability of valuation practices.

Valuation standards provide generally accepted principles and definitions required for valuation. They also provide considerations that a valuer must consider while undertaking valuation assignments and in preparing valuation reports.

Valuations conducted applying valuation standards have greater acceptability and in cases of disputes, it becomes easier for courts/ arbitrators to rely on valuations if they are prepared applying valuation principles.

There are various sets of valuation standards in the world, the more important ones being:

1. International Valuation Standards, effective 31 January 2020 (IVS), issued by International Valuations Standards Committee (IVSC).
2. European Valuation Standards, 2016 (Blue Book) issued by The European Group of Valuers’ Associations (TEGoVA).
3. ASA Business Valuation Standards, 2009 read with ASA Principles of Appraisal Practice and Code of Ethics, both issued by American Society of Appraisers, USA (ASA).
4. Uniform Standards of Professional Appraisal Practice 2020-21 (USPAP) issued by The Appraisal Foundation, USA.
5. AICPA VS Toolkit comprising various valuation standards issued by American Institute of CPAs (AICPA).
6. RICS – Valuation Global Standards effective 31 January 2020 (The Red Book) issued by The Royal Institution of Chartered Surveyors, U.K. (RICS).
7. ICAI Valuation Standards 2018 (ICAI VS) issued by The Institute of Chartered Accountants of India (ICAI) and adopted by ICAI Registered Valuers Organization (ICAI RVO).

In India, Companies (Registered Valuers and Valuation) Rules, 2017 (Valuation Rules) require that any valuation carried out by a registered valuer shall be carried out in accordance with the valuation standards notified by the Central Government and until such valuation standards are notified, a valuer shall make valuation as per

1. internationally accepted valuation standards (emphasis supplied);
2. valuation standards adopted by any registered valuers organisation.

Valuation Rules apply to valuations to be carried out by registered valuers. However, presently registered valuers are only required to carry out valuations prescribed  under the Companies Act, 2013 (Act) and those specified under The Insolvency and Bankruptcy Code, 2016 (IBC 2016).

IBBI’s CIRP Regulations provide that fair value and liquidation value of the corporate debtor to be determined in accordance with internationally accepted valuation standards (emphasis supplied). Further, IBBI’s Liquidation Process Regulations provide that valuation of assets of the corporate debtor be computed in accordance with Valuation Rules.

Foreign Exchange Management rules and regulations provide that the price of shares/ securities of an unlisted Indian company be carried out by a chartered accountant or a cost accountant or a merchant banker as per internationally accepted methodology for valuation on an arm’s length basis. These rules and regulations do not require compliance with any valuation standards nor do they require valuation to be conducted by a registered valuer.

In respect of a foreign direct investment in a limited liability partnership, Foreign Exchange Management rules and regulations provide that the investment be made at a fair price which is worked out as per any valuation norm which is internationally accepted or adopted as per market practice and a valuation certificate to be issued by a chartered accountant or a cost accountant or by an approved valuer from the panel maintained by the Central Government.

Income Tax Act, 1961 and rules made thereunder also do not specify that valuations of shares/ assets should be carried out based on any valuation standards.

Hence, it can be seen from the above that there is no requirement in India for a valuer to follow any particular set of valuation standards except that ICAI requires chartered accountants to mandatorily follow ICAI VS while carrying out valuations required under the Act and that ICAI RVO also requires its members (registered valuers) to follow ICAI VS while conducting valuations.

Even though there is no requirement to follow valuation standards under foreign exchange management law or income tax law or where valuations are carried out other than for tax or regulatory purposes, it is suggested that valuers follow a set of valuation standards as compliance with valuation standards increases the reliability and acceptance of valuations.

It has been noticed that many registered valuers follow IVS and some may be following The Red Book (RICS – Global Valuation Standards), particularly for valuation of immoveable property and plant and machinery.

There appears to be a misconception amongst the valuers that Valuation Rules require registered valuers to follow IVS and not any other set of valuation standards. However, till the time valuation standards are notified by the Central Government, registered valuers can follow any of the internationally accepted valuation standards or the valuation standards adopted by the registered valuers organisation of which they are member.