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 valuation reporting and documentation requirements.
Scope and application
There are three pronouncements related to Valuation Services.
APES 225 Valuation Services was originally issued in July 2008 and revised in May 2012, December 2015 and March 2018 (extant APES 225). APES 225 has been revised by APESB in July 2019. The revised standard is effective for valuation engagements or assignments commencing on or after 1 January 2020. 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.
Guidance notes APES GN 20 Scope and Extent of Work for Valuation Services (APES GN 20) and APES GN 21 Valuation Services for Financial Reporting (APES GN 21) have been recently revised.
APES GN 20 provides guidance to assist members in determining the scope and extent of work that is appropriate for the three types of valuation services defined in APES 225.
APES GN 20 notes the need for members to exercise professional judgement in determining the extent of work and evidence relating to each type of valuation service. The appendix in the guidance note sets out illustrative examples to guide members when determining the scope and extent of work in a valuation service.
APES GN 21 provides guidance to members on their professional and ethical obligations when providing a valuation service in accordance with APES 225 for financial reporting purposes. In particular, it notes the importance of determining the scope of work when performing a valuation service for financial reporting purposes.
The guidance note also outlines key matters for members to consider in relation to disclosures in valuation reports in respect of business combinations, impairment of goodwill and intangible assets, share-based payments, financial instruments and assets held in superannuation entities.
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 the Fundamental Principles of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (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 – Complying with the Code
- Section 112 – objectivity
- Section 113 – professional competence and due care
- Section 114 – confidentiality
- Section 320 – professional appointments
- Section 310 – conflicts of interest
- Section 260 &/360 - Responding to Non-Compliance with Laws and Regulations
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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APES 305 Terms of Engagement
This overview is not a replacement of the standard and therefore should be used in conjunction with, and not instead of, the standard