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Most corporates in India carried out company valuations only when regulations mandated it. Thus far, it was mostly only the RBI and SEBI which required company valuations, for exchange control (FEMA) and shareholder protection respectively.
Historically therefore just a handful of companies were impacted. However the regulatory landscape is changing fast. Changes include:
These changes point towards valuations being required even on an ongoing basis in every business, for issues such as carrying value of investments, goodwill impairment assessments, etc. For example, if impairment is to be tested for each CGU annually, this creates a need to carry out a CGU-wise valuation annually and compare it to the carrying value (book value) of the CGU’s assets.
Similarly, most financial firms that are involved in investments in equity are required to mark their investments to market, and to accept an impairment if the market value falls below cost. Companies that have historically purchased a company through the purchase combination method are required to constantly re-evaluate whether the goodwill on purchase has been impaired.
What passed muster five years ago does not pass muster now, simply because both the regulations and the regulators have evolved. For a more detailed look on valuation regulations and how they might impact your organisation, please download: September 2017 Knowledge Update on Valuations for Businesses and Assets.