CPV - Certified Practising Valuer

Company Directors face new pressures

Several recent cases run by the Australian Securities & Investments Commission have also brought greater public scrutiny over the roles of company directors and their responsibilities to shareholders. These cases have also highlighted the potential liabilities directors face if their duties are not fulfilled adequately. One key duty is to keep the market fully informed of a company’s financial position and – with asset values falling in some sectors of the market – company directors face renewed pressure to ensure their company’s statements of financial position do not mislead shareholders or the general public.

Companies develop survival strategies

Some companies will be developing survival strategies to weather the downturn, others will be in a position to seek opportunistic advantages from distressed sellers – all will need the most accurate information possible about the current state of the market to underpin their plans.

More independent valuations

One particularly challenging area at the moment is in valuing property assets. Some illiquid entities such as unlisted property trusts hold sizeable assets and some of these may be forced to sell in the near to medium term, influencing prices in ways that are hard to quantify. In addition reducing rents and increasing yields will impact Discounted Cash Flow modelling.

The regulatory environment (e.g. Australian Accounting Standards Board standards and ASIC guidelines) also points to the need for more independent valuations performed at a minimum interval of two-three years.

Is fair value being achieved?

There are questions over whether “fair value” (as defined by ASIC) is being achieved by sellers in an environment where some don’t have the luxury of time to seek the widest potential range of buyers or where there is little information on the current state of the market.