Business valuation investigation requirement under the International Valuation Standards

Planning on valuing a business in an international setting? Then consider complying with the International Valuation Standards (IVS). Just about in any jurisdiction where business assets are valued, standard compliance is key and the IVS rules the roost.

Investigations that precede your valuation

One of the key requirements under the IVS is a properly conducted fact finding investigation. First, you should state the purpose and scope of your engagement to the business management clients. Next, you would need to gather sufficient information and analyze it to support your valuation conclusions.

Under the IVS, a valuer conducting a business valuation should cover a number of bases. For instance,  inspections of the business operations and interviews with the management and key employees.  In addition, the valuer should keep detailed calculations to back the valuation results.

Let the client know of the scope of your investigation

Sounds like the analysis paralysis in the making, doesn’t it? A bit of good news – you can set limits on how much investigative effort you will do. And then communicate this to the clients.

But what if the clients try to limit your research in order to save money on the valuation project? Then you should tell them if the limits prevent you from doing what you need in order to ensure the valuation holds water.

No corner cutting

Don’t cut corners just to please the client. If you think the valuation results are in doubt because you had to skip steps, state so in your valuation report.

Check your info sources for credibility

The more important the information you use in your analysis, the more attention you should pay to its credibility. Are the sources of data verifiable? Do the people who provided you with the info understand its significance? If you feel the data provided looks shaky, do not use it in your analysis or state the potential impact of inaccuracies.

No conflict of interest or bias allowed

IVS is picky when it comes to independence of your info sources. Generally, there should not be any vested interests either in the company ownership or how the valuation results turn out.

At the end of the day, you should make a call as to whether you have enough info to create a credible valuation. If third party information you can get falls short or can’t be trusted, you need to communicate to your valuation report readers that you could not meet the IVS compliance requirements.

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