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It’s the time of the year when companies try to maximise efforts for a strong close to the last quarter before jetting off on long-planned holiday breaks. It is also the time when they are closing their books for the year, ensuring accuracy of all financial information before starting afresh in the new year.
With a rise in the number and range of corporate activities and as increasingly more companies adopt the International Financial Reporting Standards (IFRS), there are higher instances of using valuation measurements in financial reporting. As year-end reporting is a mandatory requirement for companies, the application of new standards strengthen the need for accurate accounting valuation processes.
Raising the valuation standard
At Cavendish Maxwell, we fully understand the importance and complexity of year-end accounting valuations.
Professional valuers are often instructed by the reporting entity to appropriately value assets, which will then be reviewed by auditors. Alternatively, they can be employed by the auditors themselves, in ascertaining if the values provided by the reporting entity are accurate and reasonable.
The International Accounting Standards Board (IASB) publishes the IFRS and works closely with the International Valuation Standards Council (IVSC) who sets the International Valuation Standards (IVS).
Professional valuers for the reporting entity
Carrying out valuations of certain assets can be simpler than others using current or historical market prices. However, reporting entities need a professional valuer to ensure that the values provided are accurate and fit to use in financial statements, which would be further scruitinised by auditors. To meet these requirements, valuers are expected to have up-to-date knowledge of reporting, audit and valuation standards, thoroughly understand the scope of work, and engage in transparent and frank conversation with the reporting entity. The valuation report that is subsequently prepared should contain extensive information about the valuation process, including methods and approaches used, assumptions made and sources engaged for key data, all of which eliminates the need of the auditor to request additional information. RICS and RERA Registered Valuers at Cavendish Maxwell, which has the largest valuation department in the UAE, follow the highest industry standards to provide an accurate valuation with reporting that meets even the most specific of requirements of auditors.
Professional valuers for the auditor
Auditors who are skilled at accounting and auditing practices may often not possess adequate knowledge or relevant expertise to audit information in fields other than accounting. This is when valuers who are subject-matter experts should be engaged to ensure the accuracy of valuations and other information submitted by reporting entities.
As a first step, auditors can check that the methods, models and assumptions made by the valuers are in line with generally accepted benchmarks in the expert’s field of work, and that the conclusions presented comply with professional standards or rules of the respective field. Valuers should comply with the International Valuation Standards Council (IVSC) Code of Ethical Principles for Professional Valuers, or an equivalent code of conduct issued by another regulatory body. When the valuer addresses the nature, scope and objective of the valuation assignment, including the format of the report, an auditor who engages a professional valuer as its expert must address the same aspects to comply with the International Standard on Auditing (ISA) 620. Reports from Cavendish Maxwell readily meet these requirements – they are RICS Red Book (IVS) complaint and accepted by over 40 UAE banks and major auditors.
Once this is established, the auditor and the valuers together plan the assignment, devising a process to ensure that the auditor has substantial and relevant information to arrive at a conclusion about the values presented by the reporting entity. The scope of work can also include confirming the Financial Reporting Standards applicable to the valuation, determining how the asset is classified by the reporting entity and the basis of valuation, and setting the limitations on the valuer’s investigations. An important responsibility of the valuer in the process is helping the auditor identify areas that are vulnerable to risks or valuation uncertainty.
During the review of the assignment, it is likely that additional dialogue between the auditor and valuer will take place for further clarity and may even require additional hours to be factored into the scope of work. On the valuer’s part, it is therefore best to capture the findings, including any disclosures and material assumptions, in a clear and comprehensive manner that can be effectively interpreted by the auditor.
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