The Hindu Business Line : Valuations need to be transparent, reliable and fair

A proposal currently doing the rounds is about the need for an institute to regulate `corporate valuers'. It seems the Ministry of Company Affairs wants to structure an independent professional body on the lines of national professional bodies such as the ICSI (Institute of Company Secretaries of India), the ICWAI (Institute of Cost and Works Accountants of India) and the ICAI (Institute of Chartered Accountants of India). "Just what the time demands now," says Mr N. K. Jain, Secretary and CEO, the ICSI. "A body that will oversee, develop and regulate corporate valuation process as a profession is what the country requires to set up as expeditiously and as cohesively as possible."

Here, Mr Jain answers a few questions from Business Line.

On the need for such an institute of valuers.

Valuation of corporate assets, tangible and intangible, and entire corporate enterprises, not-for-profit organisations, and what is called enterprise wide valuation, affect investors, especially small investors. Such valuations, therefore, need transparency, reliability as well as justice and fairness. Whether it is a corporate rearrangement, compromise or arrangement among various classes of investors or stakeholders, a long-term alliance, merger or a friendly/hostile takeover, valuation of various aspects of corporate ownership and interests is invariably involved.

The process of globalisation of corporate affairs is already in full swing. Cross-border alliances, mergers and takeovers as well as purely indigenous events on this front are becoming the order of the day. To instil confidence among the investors, be they institutional or retail, Indian or foreign, it is necessary to ensure, through an institute, discipline, ethical conduct and responsibility on the part of the valuers.

On the profession of valuation elsewhere in the world.

In countries such as Australia, the UK and the US, separate institutes of valuation are in the process of coming into existence. In India, engineers, cost accountants, chartered accountants, practising company secretaries, as trained professionals, undertake such valuation exercises. Yet, there is no apex regulatory and oversight mechanism, nor any educational and training body that ensures professionalism, ethics and transparency in the isolated valuation processes.

On why valuation is a specialisation.

Valuation of corporate enterprises and assets, shares and other securities has become a specialised process requiring considerable expertise, independent judgment, fairness and complicated exercises on the part of the professional valuer.

The form of corporate assets is shifting very fast toward intangibility. A recent study by the Brooklyn Institute, US, has shown that in terms of value 78 per cent of corporate assets are intangible. Valuation of intangible and other corporate assets has become a multi-disciplinary academic and professional stream.

On what the new institute means to the existing three institutes.

Although professions such as chartered accountants, cost accountants and company secretaries are today independently carrying out corporate valuations and certifying the value of corporate enterprises or assets, it is necessary that, as professional valuers, a multi-disciplinary streamlined institutional edifice regulates and develops their expertise and professional work.

It is, therefore, a logical and visionary step that the Ministry of Company Affairs has taken to involve the ICSI, the ICWAI and the ICAI, all set up and working under its aegis, to conceive, man and get going an `Indian Institute of Valuers' for developing and regulating the profession of corporate valuers in India.

D. Murali

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