APES 225 Valuation Services sets out mandatory requirements and guidance for members who provide valuation services. The primary professional obligations imposed by this standard are to mandate the valuation reporting and documentation requirements.
Scope and application
APES 225 took effect on 1 January 2009 and was revised in May 2012, December 2015 and March 2018. The revised standard is effective for valuation engagements or assignments commencing on or after 1 July 2018. It requires members in Australia to adhere to its mandatory requirements when they perform a valuation engagement or assignment. For members outside of Australia the scope of the Standard must be followed as long as local laws and/or regulations are not contravened.
Fundamental responsibilities of members
APES 225 requires members to observe and comply with their public interest obligations when they perform a valuation engagement or assignment. Further, they must comply with Section 100 - Introduction and Fundamental Principles of APES 110 Code of Ethics for Professional Accountants (the Code) and relevant law or regulation.
The Standard requires that members comply with their professional obligations established in accordance with the Code in respect of:
- Section 100 – public interest
- Section 130 – professional competence and due care
- Section 140 – confidentiality
- Section 210 – professional appointments
- Section 220 – conflicts of interest
- Section 280 – objectivity – all services.
Examples of what constitutes the provision of a valuation service
For a valuation service to exist the following three criteria must be satisfied:
- the member must be engaged or assigned to perform a valuation
- the member must determine an estimate of value of a business, business ownership interest, security or intangible asset by applying valuation approaches, valuation methods and valuation procedures
- the member must be engaged or assigned to provide a valuation report (written or oral).
Members are referred to Appendix 1 of APES 225 which provides a schematic overview of what constitutes a Valuation Service and 23 examples that illustrate what constitutes a valuation service and what is not a valuation service.
Professional engagement and other matters
APES 225 reminds members of their professional obligation to document and communicate the terms of engagement in accordance with APES 305 Terms of Engagement. Where a member engages services of a suitably qualified third party, the member cannot disclose the opinion or the name of that third party without their consent. The only exception is where there is a legal obligation of disclosure.
APES 225 specifies the elements that members need to include in a valuation report to a client or an employer. In most instances members in public practice will issue written reports. However, the standard allows members in public practice to issue oral reports in certain circumstances. Where the valuation report is communicated orally the member in public practice needs to document the oral communication and the reasons why the valuation report was issued orally. In addition to the above, the standard also recommends members in public practice to include additional information such as a summary of relevant financial and industry information in the valuation report.
Refer to the standard for information concerning:
- the three types of valuation services
- professional independence
- use of a third-party expert
- reporting requirements
- use of a glossary of business valuation terms
- professional fees.
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