Review of valuation reports
Review of valuation is appraiser’s work analysis, performed by another appraiser who expresses his independent opinion.
Review of valuation report is necessary for quality and trustworthiness check of appraiser’s work and is a necessary part of professional appraiser’s practice.
Review of valuation report is not directly a repeated valuation, but it is an analysis of presented for examination report for the following purposes:
- To ascertain that the report meets the requirements of the standards listed as used in this report;
- To ascertain that obtained results and passed in the report opinions correspond with provided source information as well as with other available and known information.
In particular cases other purposes of review could be specified by the client.
The resulting document is usually a review of valuation report or valuation expertise report (in terms of ISA) or opinion letter about review of valuation report.
Cases of mandatory review of valuation report
Review of valuation report is preformed when the following people are appealing:
- Clients (either the client who ordered valuation or other interested parties, including opponents of the client who ordered valuation);
- Client’s auditor;
- State controlling unit;
In the most cases review of valuation report is initiative (i.e. not obligatory by legislate).
But Russian legislation contains a number of requirements of mandatory review of valuation reports in self-regulated appraiser’s organizations, including:
- Review of valuation reports in accordance with article 77 of Federal Law «About joint stock companies» ¹208-FZ dated 25.12.1995;
- Review of valuation reports in accordance with article 130 of Federal Law «About insolvency (bankruptcy)» ¹127-FZ dated 26.10.2002.
When review of valuation report could be useful
The main purpose of the review of valuation report is report’s quality check and its compliance with current legislation. Therefore usually users of review of valuation reports are opponents of users of valuation reports. Often review of valuation report is used in transaction-related assizes, when appraiser’s report is used for transaction preparation.
Taking into consideration recently increased interest of different controlling units to the quality of valuation as well as existing practice of protesting transactions prepared with using in a varying degree of valuation report by the third parties, at present among the users of review of valuation report there are more and more users of valuation and appraiser’s themselves.
In this case the task of the Expert is not only checking report’s compliance with legislation and standards, but also analysis of possibility of making a protest in judicial agencies and self-regulated organizations as well as elaboration of improvement recommendations.
Additional (voluntary) review of valuation report is recommended in the following cases:
- The probability of protesting the transaction which the valuation is made for is very high;
- A great attention to the transaction is paid by different controlling units, mass media and «public activists»;
- The valuation is made for a transaction with expensive state or municipal property;
- The transaction, which valuation is made for, infringes minority shareholders’ interests.
Profound review of valuation report — RVS’ technology
The main purpose of the review of valuation report is checking report’s compliance with legislation and correctness of used approaches. In addition the Experts analyze such questions as sufficiency of source information, used by the appraiser, and correctness of applied assumptions and restrictive clauses. But anyway review of valuation report isn’t repeated valuation.
Therefore often clients are interested in more thorough review — so called «field» review. within the bounds of such review the expert goes to the object for inspection and verifying the data, represented in the valuation report, analyzes additional market information (e.g., correctness and trustworthiness presented information about objects-analogues).
In addition RVS’ specialists within the bounds of field review are ready to offer following special verifying procedures:
- Analysis of sensitivity of given value to source data;
- Information about objects-analogues and other market information verification for trustworthiness (independency);
- Special inspections organization (involvement of additional experts for analysis of certain calculation elements validity);
- Elaboration of recommendations for report’s and calculation’s corrections;
- And more.
Who can be an Expert
There are no special qualification requirements to the appraisers who perform review of valuation report in Russian legislation. Any specialist who has appropriate professional education can be an expert. But taking into consideration high importance of review of valuation report as well as high responsibility of an expert, usually experts are highly qualified appraisers, which have an experience of valuation of objects, which are analogous to the objects valuated in analyzable report.
Russian Valuation Service’s employee have a great experience of performing valuation of different objects located in different regions of Russian Federation. Obtained experience could be useful for performing review of valuation reports.
Council of experts of the RSA
Council of experts of the RSA is an agency of self-regulated appraisers’ organization the RSA, established for performing review of valuation reports in accordance with legislation of Russian Federation. Members of council of experts of the RSA are chosen by General meeting of the RSA. More information about Council of experts’ activity can be found on the RSA’s web-site.
On 7th December 2007 at annual General meeting of the RSA the future president of LLC «Russian Valuation Service» Alexander Zhiglo was elected as a member of Council of experts of the RSA.
The requirements to performance of review of valuation reports are contained in valuation standards. In addition methodological recommendations for review of valuation reports were developed by the biggest self-regulated appraisers’ organizations.
Further, partial list of documents which can be used when performing review of valuation report is shown:
- Federal valuation standard ¹1 «General terms, valuation approaches and valuation requirements» (approved by the order of Ministry of economic development and commerce ¹256, dated 20.07.07);
- International valuation manual 11 «Examination (verification) of valuation»;
- Statute of review of reports by the Russian Society of Appraisers procedure (Approved by protocol ¹63 of the RSA’s board meeting, dated 26.10.2006);
- Methodological recommendations for reviewing of reports (Approved by the Council of the RSA, dated 25.06.2008, protocol ¹144);
- Methodological recommendations for valuation of stock in accordance with the requirements of Federal Law «About joint stock companies» ¹208-FZ dated 26.12.2005 (law as amended on 24.07.2007, ¹200-FZ) (Accepted by Council of experts of the RSA on 01.10.2007; approved by the decision of Council of the RSA on 01.11.07);
- Statute of procedure of performing review of stock valuation reports by Council of experts of All-Russian public organization «The Russian Society of Appraisers» (Approved by Council of experts of the RSA on 01.10.2007);
- Procedure of review of valuation reports organization (Law of Federal Agency of federal property administration ¹134 dated 03.05.2005) (Order of Rosimushchestvo ¹390 dated 30.12.2005);
- Procedure of review of valuation reports performance (Law of Federal Agency of federal property administration ¹185 dated 09.10.2007).