A move to bring transparency in asset valuation
The government’s reported move to set up a new institute for valuation professionals is likely to go a long way in safeguarding the interests of minority shareholders.
By Gireesh Chandra Prasad, TNN |
NEW DELHI: The government’s reported move to set up a new institute for valuation professionals is likely to go a long way in safeguarding the interests of minority shareholders.
It will also make the business of asset valuation ahead of corporate mergers, acquisitions and restructure more organised and transparent. Presently, many shareholders remain uninformed about how the worth of a company has been assessed based on its assets, earning potential and the present market value.
The proposed council of valuation professionals of India seeks to issue licences to professionals, without which they cannot practice. The government has taken the initiative to create a regulator that would set quality standards for everything related to valuation, including valuation protocols and the qualification and training of professionals.
The company affairs ministry has prepared a draft Valuation Professionals Bill that would be widely debated among professionals, industry bodies and corporate houses in the next few days. However, among those who already practice valuation, chartered accountants are not quite happy with the plan for a new regulator.
ICAI feels that there is no need for a specialised regulator for every niche area in the profession. Besides CAs, engineers, lawyers, company secretaries and cost accountants are active in this profession. ICSI, however, thinks differently.
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Its president Preeti Malhotra said a separate institute for valuers would go a long way in safeguarding the interests of minority shareholders by ensuring fair valuation of shares during mergers and amalgamations. Another benefit would be that it would bring about standardisation and uniformity in valuation norms. She pointed out that many countries, including the US, the UK and Australia, were in the process of setting up independent institutes for valuation. The bill covers valuation of all tangible and intangible assets, including intellectual property rights and goodwill.
According to a government official, the idea is not to put spokes in the smooth functioning of corporates. Instead, it is to ensure that the interests of stakeholders are protected while facilitating a fertile environment for corporate growth.
Besides setting the standards of valuation and issuing certificates of practice to professionals, the proposed council would also be empowered to recognise institutes that train valuation professionals. It would set eligibility criteria for such institutes, approve academic courses and coaching fee, set criteria for holding examinations and evaluating students. The regulator can also derecognise an institute for failing to comply with the norms. The institute will also have a senior official in charge of disciplinary action.
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The proposed regulator would have 16 members nominated by the government and the existing regulators—the Institute of Chartered Accountants of India (ICAI), the Institute of Company Secretaries of India (ICSI) and the Institute of Cost and Works Accountants of India (ICWAI). There would also be an appellate authority. The regulator would ensure that professionals follow ethical conduct and would put in place a stringent disciplinary mechanism. Mandatory valuation of corporate assets at the time of mergers, acquisitions and restructure was strongly recommended by various expert panels.
When the JJ Irani committee prepared a report on overhauling the company law, it considered suggestions by an earlier panel headed by Shardul Shroff and recommended that valuation of shares of companies involved in schemes of mergers should be made mandatory by independent registered valuers rather than by court appointed valuers. Experts say that judiciary has issued guidelines on fair valuation practices and they need to be made statutory guidelines by the regulator.
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