The Value of ‘Valuation’

1. The Value of ‘Valuation’ Rajiv Krishnan, DGM State Bank of India Zonal Office, Vadodara Gujarat India Prepared by: Dr Rajesh Khajuria, TEAM Projects & Consultants, Vadodara www.TeamPro.org

2. Indian Economy • Indian economy is growing @ 8% plus p.a., likely to touch 10% over next few years. • India is one of the top 5 produces or processors of Textiles, Diamonds, Tea and Manpower. • Indian economy is one of the oldest, and youngest economies in the world, with half a billion young people.

3. Indian Economy • India’s exports are rising @ 25%, and imports @ 34% p.a., reaching total export-import of about US$ 300 billion. • Indian professionals are more ethical, and deliver upto 3 times more productivity at upto three times less cost of developed nation – hence preferred the world over. • How can you benefit as a Valuer? • My Answer is: Knowledge, Practice and Ethics.

4. Institutions • Institution of Valuers, New Delhi • www.InstitutionOfValuers.org • Practicing Valuers Association of India • www.pavi.info • International Valuation Standards Committee’ UK (www.ivsc.org) • India represented by PAVI. • International institutions of Valuers are functioning in major countries. • Valuers are also called ‘Appraisers’ in The USA.

5. 4 Valuation Practice Four Practices of Valuation: • Determination of Value of ‘Assets’. • Forecasting of the ‘Earning Power’ of Assets. • Estimation of the ‘Cost’ of Asset. • Determining ‘Non-monetary Benefits’ or characteristics that contribute to Value.

6. Value, Forecasting & Cost of Asset • In ‘Valuation’ and in Forecasting of ‘Earning Power’, the word ‘Asset’ is used to describe the rights to the future benefits of something owned or possessed to the exclusion of other persons. • The "something owned" may be tangible, intangible or both. • In a ‘Cost’ estimation, the word ‘Asset’ is used to describe the "something owned" without regard to its ownership.

7. Non-monetary Benefits • The rendering of judgments as to age, remaining life, condition, quality, or authenticity of physical assets, amenities, based on: • An estimate of the amount of a natural resources, population increase, nature of market, rate of absorption, etc.

8. Principles of Valuation Practice and Code of Ethics • Inform those who use the services of Valuers as to what, in the opinion of Association, constitutes competent and ethical valuation practice: • Serve as a guide to its own members in achieving competency in valuation practice and in adhering to ethical standards.

9. Principles of Valuation Practice and Code of Ethics • Aid in the accomplishment of the purposes of the Association, which include : • (a) Fostering the age of valuation education, • (b) Improvement and development of modern valuation techniques, • (c) Encouragement of sound professional practices, • (d) Establishment of criteria of sound performance for use of employers and staff of valuers, • (e) Enforcement of ethical conduct and practice by its members.

10. Knowledge & Practice • Individual Skills, Competence, and depth of Ethical understanding in valuation practice. • Reputation of members. • Registration Certificates of Institution or Association of Valuers.

11. Unethical Practices • Contingent Fees (based on proposed value of assets) are unethical, unless specified and agreed by the client or third party (like Bank). • Valuer should not be interested in the property to be valued, unless disclosed and agreed by the client or third party. • Signature forgery or unsigned valuation reports. • Advocacy of self or valuation services offered. • Advertising and solicitation of business.

12. Unethical Practices • Unconsidered or preliminary report on valuation without going into required details. • Deviation from standards of valuation. • Unprofessional conduct. • Conviction in Court of Law.

13. Valuation Report • Description of Asset to be valued. • Statement of Purpose of valuation. • Statement of Contingent and Limiting conditions on findings of valuation. • Methodology used. • Statement of Valuer’s Disinterestedness. • Signature of Valuer, and Dissenting Opinions if any.

14. Valuer’s 5 Obligations • To client. • To third party (like Bank). • Avoid giving false numerical results. • Competency and Ethical Practice. • Character of Valuation Practice..

15. In a Nut-shell • Valuer should have ‘Thirst for Valuation’. • Collaboration with other professionals like Chartered Accountants (CA / CS / ICWA / CE etc) and Certified Management Consultants (CMCs) is encouraged for best practices. • Valuation Standards and Ethics must be observed for long term success of this important profession.

16. Thank You!