How to create a business valuation report that withstands ATO scrutiny
The ATO’s increased scrutiny of taxpayers means business valuation professionals must improve the quality of the valuation reports they submit, says Elena Saarbrucken, director at Leadenhall Corporate Advisory.
Saarbrucken says a good business valuation report must have the following attributes:
- Extensive knowledge of businesses and industries;
- An understanding of economic, financial, and political environments;
- Technical proficiency in applying both quantitative and qualitative judgement; and
- Wisdom in writing a meaningful report.
However, just knowing and understanding all of these elements is not sufficient, she adds. Business valuation professionals must use them to craft a watertight business valuation report that will guarantee acceptance by the ATO.
Drawing on six years of heading up the corporate valuation unit of the Australian Valuation Office of the ATO, Saarbrucken shares her knowledge of the valuation assessment process undertaken by the valuation office. Read more from Saarbrucken in the Q2 2015 issue of Business Valuation Australia (subscription required).
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International standards could ‘improve the public trust’ in the valuation process
The “time has come” for global quality control standards for valuations, says Bill Hanlin, president of the International Association of Consultants, Valuators and Analysts (IACVA). At the 2015 International Valuation Forum in Atlanta, Ga. (U.S.), Hanlin announced that IACVA will soon issue an exposure draft, Quality Control Standards for Valuation and Appraisal Firms. There will be a comment period, and then the standards—which will be voluntary—will be finalised.
At present, the only country that has quality control standards is China, which has a peer review process for valuations, according to Hanlin. In IACVA’s view, international standards for quality control will improve the public trust in the valuation process.
Hanlin draws parallels with accountants, who have a peer review process, and are high on the list of “most trusted” professionals around the globe.
In line with what Saarbrucken addressed in her article for Business Valuation Australia, Hanlin says regulators are asking business valuation professionals, “How do we know whether this valuation report is any good?” He says the proposed standards will serve to ward off government regulation in the business valuation sector.
Business Valuation Australia will help disseminate these new proposed standards. Stay tuned to BVWire—Australia for an announcement of the exposure draft’s release. We will also post it on our new Global Business Valuation Resource Centre.
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Study examines global intangible values
The advertising industry contains the most intangible value globally, with virtually all of its aggregate value coming from intangible assets, the Global Intangible Financial Tracker (GIFT) 2015 study from Brand Finance has found. The study examines the portion of enterprise value that represents intangibles (brands, people, know-how, relationships, and other intellectual property).
The report covers more than 58,000 companies quoted in more than 120 countries and 120 stock exchanges. France is the country with the most intangibles, with the highest percentage of disclosed intangibles out of total enterprise value. Australia is in 19th place. At the bottom of the scale were Pakistan, Vietnam, and China.
The U.S. has the highest proportion of total value accounted for by intangibles, at 73%. “This is mainly the result of its being the home of a number of the world’s largest technology companies, e.g. Apple, Google and Facebook, with Internet being one of the most intangible sectors globally,” the study says.
For wealthier nations, the study says the value and importance placed on intangible assets is a greater proportion of the total value of most businesses than the value of tangible assets, such as plant and machinery.
“The creation and management of intangible assets is essential to long-term success. Corporations therefore need to understand their intangible assets in order to leverage them for greater economic and shareholder value.”
The total enterprise value of all entities studied was US $71 trillion at the end of 2014. Of this value, US $33.5 trillion represents net tangible assets. The rest is the value of disclosed intangibles (US $11 trillion) and “undisclosed value” (US $26.5 trillion).
In addition to advertising, industry sectors with the highest proportion of intangibles are pharmaceuticals (91% intangible value) and media (90%). At the other end of the spectrum are oil and gas (97% tangibles), electric (79%), and banking (78%).
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BVR’s business valuation training in May
Business Valuation Resources offers a full slate of BV training online. Attend either live or via an electronically delivered training pack. Here’s what is coming up:
Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist firstname.lastname@example.org.
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