ICAI issues VCM ATQs on ‘Valuation Date, Valuation Report Date and Events Occurring between these dates’

ICAI- VCM ATQs - Taxscan

The Institute of Chartered Accountants of India (ICAI) has issued VCM answers to the questions (ATQs) on “Valuation Date, Valuation Report Date and Events Occurring between these dates”.

Valuation Standards Board of ICAI (VSB) had organised a live webcast on the topic “Valuation date, Valuation report date and events between these dates!” held on 27th June, 2021.

The Webcast received overwhelming response and was attended by more than 2000 viewers. The said webcast can be viewed again at https://live.icai.org/vsb/vcm/27062021/.

There were many questions raised during the webcast. The ICAI prepared answers to the questions (ATQs) raised during the webcast, which do not require application of valuation practices and principles. Also, repetitive questions and questions not related to subject matter have not been answered.

The ICAI while answering the ATQs clarified that if the valuation date assigned by the client or chosen by the valuer is the same as the final valuation date, most likely there will not be much need for adjustment of information arriving after valuation date. Otherwise, the valuer may need to adjust value or make disclosures based on his professional judgement.

To identify a right date of valuation we can divide valuation assignments into two parts namely Pre-Transaction valuation: wherein a transaction occurs prior to the valuation report date e.g., preferential allotment, mergers and acquisitions, issue of sweat equity shares etc. and Post-Transaction valuation: wherein valuation is done after a transaction has already materialized, e.g., for accounting, taxation or litigations.

Usually under The Companies Act, 2013, FEMA, IBC 2016 & SEBI, pre-transaction valuation is done. While under Income Tax, Ind AS & litigations, post-transaction valuation is done. Valuation consultancy is usually pre-transaction while valuation review is usually post-transaction.

Further, under The Companies Act, 2013, valuation may be primarily classified as a pre-transaction valuation, i.e., transaction is entered into based on value certified by valuer, and post transaction valuation i.e., transaction is completed much later than the valuation date.

The ICAI clarified that one cannot have a date of valuation after the date of report signing.

Under IBC too, the challenge remains the same, i.e., the long-time gap between various events. Under IBC, a valuer is required to give valuation as on the Corporate Insolvency Resolution (CIRP) date, but resolution plans generally are accepted on a much later date than the CIRP date.

Further, the law does not specify any duration for which valuation report remains valid. It remains the prerogative of the Resolution Professional or Committee of Creditors to decide that till what point of time the valuation report remains relevant and when they need to get a revised valuation done.

As per the Companies Act 2013, Valuation is not mandatory for right issue. As per Income Tax Act, if shares are issued on premium, then only valuation is mandatory, else it might be considered as Income of the Company.

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