The valuation of unlisted investments continues to garner significant attention in the media and by regulators given the high level of judgement involved and the often-perceived lack of transparency around the valuation process.
In addition, the volatility of markets in the post-COVID environment underscores the importance of good governance, accurate valuations, and transparent financial reporting.
The valuation practices used and policies implemented has gained further attention in a number of different asset classes including commercial property, unlisted tech entities and infrastructure assets. As a result, asset managers need to ensure that their governance processes are robust and address issues around valuation frequency and transparency to provide investors with clarity and confidence.
Governance post-COVID
There are many challenges that need to be considered in relation to the governance of valuations, including the illiquidity of unlisted assets and the risk of stale valuations, which can affect transactional activities and equity between investors. There has been a push from investors and APRA alike for more rigorous reporting and governance, and we are starting to see the adoption of these practices in smaller entities but there is still room for improvement. To ensure objectivity and governance compliance, it is important to have a well-documented valuation policy, including addressing the frequency of valuations and the appointment of independent valuators.
Best practices for financial reporting
As we approach the financial year end, there are a number of considerations for valuers, accountants and those charged with governance:
- Accuracy in financial reporting: Ensure assumptions and significant judgements made in reaching the fair value of an asset are disclosed within financial statements for investors to make informed decisions.
- Regular and robust valuation processes: Address the illiquidity and infrequency of unlisted assets valuations to provide transparency and avoid stale valuations.
- Regulatory scrutiny: Consider the SPS 530 Valuation Governance from APRA.
Investor demand for rigor: Observe and action demand for robust reporting and governance from investors.
- Consistency in reporting: Note the diversity in reporting values of unlisted investments and trends towards more frequent and formal valuations.
- Valuation policy and independence: Understand the importance of a well-documented valuation policy that considers the frequency of valuations and engagement of independent valuators for objectivity.
- Discounted cash flow (DCF): Recognise DCF as a robust valuation approach, despite its challenges, and the importance of cross-checking with earnings multiples.
These practices aim to enhance the financial reporting quality and meet the evolving expectations of governance and investor relations in the context of unlisted investments.
These practices aim to enhance the financial reporting quality and meet the evolving expectations of governance and investor relations in the context of unlisted investments.
Grant Thornton has expertise across both valuations and financial reporting and are well equipped to provide independent advice or assurance on the topics covered above and in our webinar. Contact a member of our team to discuss your valuations and financial reporting needs.
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Accounting for and valuing unlisted investments
