Business valuation becoming vital in financial reporting

Mr Tham said the new programme for chartered valuers and appraisers will boost quality and consistency.
Mr Tham said the new programme for chartered valuers and appraisers will boost quality and consistency.

Business valuation is becoming a more vital part of corporate accounting and driving the need to enhance the skills and standards around this speciality.

An ongoing focus on this front is now bearing fruit through initiatives such as a new programme being launched this week to nurture chartered valuers and appraisers, KPMG managing partner Tham Sai Choy told The Straits Times.

Business valuation is an aspect of accounting and auditing that establishes the value of an asset. This is becoming an increasingly significant part of financial reporting, said Mr Tham, who is also a board member of the Singapore Accountancy Commission.

"A recent survey by us found that some 80 per cent of the balance sheets now comprise estimates of fair value. The more objective, cost-based accounting of my generation is giving way to the more complex world of financial instruments, multiple currencies and cross-border businesses," he noted.

"It is also a relatively new trend where we see more companies seeking growth through mergers and acquisitions. And this finds its way into financial reporting, where we have to break down the asset into multiple lines of different valuation to account for things ranging from buildings to brand and intellectual property."

A third area that requires better valuation services is litigation, particularly in bankruptcy cases and shareholder disputes.

The financial industry has so far relied on services scattered across providers offering different types of valuations.

"So it's quite unsustainable. It doesn't help that some of the rules are still ambiguous, and there is often a lack of understanding on how (valuations) should be used. The industry and international standard setters are still working on enhancing these rules," Mr Tham added.

The complexity of business valuation has come to the fore in recent months as public scrutiny centres on the fair value model of companies such as Noble Group.

In response to the challenge, the industry has long hoped to create a common set of competencies and standards for valuation. The launch of the Chartered Valuer and Appraiser Programme is part of the answer to that call, Mr Tham said.

The programme, by the Institute of Valuers and Appraisers of Singapore, will offer structured training and national certification to those in the valuation services, in a bid to improve consistency and quality.

Nanyang Technological University Business School will conduct the training courses, which will begin in August. KPMG is one the programme's industry partners.

The programme is part of the industry's multi-year push to build a leading accountancy hub for Asia-Pacific by 2020. As early as 2010, the Committee to Develop the Accountancy Sector (CDAS) - set up by the Ministry of Finance - noted in its report that Singapore should develop a centre of excellence in business valuation, internal audit, risk management and tax.

Another key industry initiative arising from the CDAS recommendations was the launch of the Singapore Qualification Programme in 2013, which also provides training and certification, allowing participants to be recognised as chartered accountants.

Mr Tham stressed that these industry programmes are not launched to raise the job barrier for existing professionals.

A version of this article appeared in the print edition of The Straits Times on April 18, 2016, with the headline 'Business valuation becoming vital in financial reporting'. Print Edition | Subscribe