What is inside an Agency Valuations report, part by part.

Every Agency Valuations report is a signed, written document that states its purpose, the valuation date, exactly what is being valued and the basis of value used. It then shows the normalised earnings, the methods considered and the one chosen, a range and a single conclusion, the assumptions and limitations, and an independence statement confirming the fee does not depend on the result. The report follows the guidelines of APES 225 Valuation Services and covers the minimum content the ATO says a market valuation report should contain. Fees are fixed from $1,495 + GST where the revenue of what is valued is under $2 million.

What are the parts of the report?

The order can vary with the purpose, but every report contains these parts, so anyone reading it can see what was valued, on what basis, and why the number is what it is.

How does the report follow APES 225 Valuation Services?

APES 225 Valuation Services is the professional standard for valuation services issued by the Accounting Professional & Ethical Standards Board. It lists the matters a written valuation report should clearly communicate, and it suggests further items to consider including. Our report follows the guidelines of APES 225 Valuation Services, so it covers:

• ·who engaged the valuer and a description of what is being valued;
• ·the date at which value is determined and the date the report is issued;
• ·the purpose of the report and the scope of the work, including any limitations or restrictions;
• ·the standard of value used and its definition, and the premise of value adopted;
• ·whether the valuation was undertaken independently;
• ·the approaches, methods and procedures adopted, and how they were applied;
• ·the information relied on, the material assumptions and the basis for them;
• ·the conclusion of value and any qualifications that materially affect it;
• ·that the fee is not contingent on the conclusion, content or future use of the report;
• ·and, from the further items APES 225 suggests, the other methods considered and why they were set aside, enough calculation detail to follow the conclusion, and summaries of the financial information and the industry.

How are normalised earnings shown?

Agencies rarely report profit the way a buyer would measure it. Principals take a mix of salary, dividends and drawings, and one large sale or project can lift a year. The report restates earnings to what the business would produce under an owner paying market rates, listing each adjustment with its amount and reason so a reader can test it line by line. Typical adjustments for an agency include:

• ·principal and owner remuneration restated to the market cost of doing the role;
• ·related-party rent restated to market rent;
• ·one-off income removed, such as an unusual sale fee, a project that will not recur or a lost client's final year;
• ·pass-through recoveries separated from the agency's own income, such as cleaning on a holiday rental roll or disbursements in strata management;
• ·non-recurring costs removed, such as a one-time legal matter or system migration;
• ·income that depends on a person who is leaving, identified so its risk can be priced.

Which methods are considered, and how is one chosen?

For agencies, the main candidates are a capitalisation of maintainable earnings, a multiple of recurring revenue where reliable market evidence supports it for that kind of book, a discounted cash flow where income is contracted over a known term, and net assets as a floor. The report explains which method fits the agency being valued and the evidence available, applies it, and tests the result against a second method. It also says why the other methods were not relied on. The multiple or rate used is explained by reference to what drives it for that agency, such as retention history, client spread, key person exposure and growth, rather than a rule of thumb.

Why does the report give a range and a single conclusion?

Value is an estimate, and honest estimates have a range. The range shows how far reasonable views of the main inputs move the answer. The conclusion is the single figure the valuer adopts within it, with the reasons, because buyers, sellers and advisers usually need one number to work with.

What assumptions and limitations does the report state?

A valuation relies on the information provided. APES 225 makes clear that a valuation does not involve verifying that information, so the report says what was relied on and what was not tested. It also states that the report:

• ·speaks to the valuation date, and later events are not reflected unless stated;
• ·is prepared for the stated purpose and users, and should not be used for another purpose without asking;
• ·is not legal, tax or duty advice;
• ·is not financial product advice and is not a recommendation to buy, sell or invest;
• ·relies on representations from management where records were not available, and identifies where it has done so.

What does the ATO expect a valuation report to contain?

Where a valuation is used for tax, the ATO says that, at a minimum, the report should contain the purpose and scope of the valuation, details of the asset, the date it was conducted if the valuation is retrospective, the inspection date if applicable, records explaining the basis of the market value, and the value itself. It describes market value as the estimated monetary worth of an asset on the open market at a particular time, based on its most valuable use and the amount a willing buyer and seller would agree in an arm's length transaction. The ATO also says the instructions to a valuer should acknowledge the valuer's independence and state that any fee is not dependent on the report's outcome. Our fixed-fee terms do both.

• ·APES 225 Valuation Services (revised October 2024), Accounting Professional & Ethical Standards Board
• ·Valuation Services pronouncements, Accounting Professional & Ethical Standards Board
• ·Market valuation of assets, Australian Taxation Office