Where Accounting Qualifications cannot replace the skills, experience and qualifications of a Registered Business Valuer.This is an examination on certain relevant deliberations by Boddice J of the Supreme Court of Queensland in a civil trial that occurred during 2015, connected with a disputed business valuation. In this hearing, his honour accepted that a Chartered Accountant, being a partner in a large citybased public practice was qualified – but he determined that those qualifications held, did not meet the parties intended needs.

Further, that the actual independence of that accountant became cause for concern. And finally, that there was insufficient evidence of an appropriate process and methodology in that person’s opinion of valuation to warrant changing his position.

Precis.

The case in question was a dispute between two ex-partners and the business valuations they presented to the court. These two people, had been in business for only a short while when their professional relationship soured. They determined that a “Licenced Valuer” would be engaged to provide an opinion of value – and that value would be apportioned to each 50/50 when one party bought the other out.

The elements highlighted in this report, from the transcript of proceedings are concerned with three aspects within the deliberations of Boddice J. [Leach v Ross & Anor (2013)]

Point 1: What did the parties mean when they struck a bargain to seek the opinion of a Licenced Valuer; and did a qualified accountant meet the criteria?

Point 2: Did the accountant approach the task with true independence?

Point 3: Was the process and methodology applied by the accountant “Fit-For-Purpose?”

Of particular importance is the fact that in Queensland, a “licenced valuer” (Which was the term used in the agreement between the parties in dispute) holds a qualification as a land valuer and no more. The parties were not seeking a valuation of land – but of a business.

His honour stated “There is an agreement between the parties …(but) there is no such thing as a licenced valuer…. the terms of the agreement included a person that does not exist”.

His honour in attempting to determine what the parties meant, and who the parties wanted to provide their valuation – asked the question “Who might be the type of person who could fit the description of the contract”

In his deliberations and comment, his honour arrived at someone “where a scheme exists for registration of valuers, where that person has gone through a process … of being recognised and accredited; and that includes issues of being a fit and proper person and all of the matters that a board must consider.”

“Now there is no such person (as a licenced valuer) But where there is, is licenced suggests a form of registration. There is a person called a Registered Valuer.”

Your experts are not properly qualified as valuers …They’re not Registered Valuers. They’re accountants…” Further, his honour stated; “The experts you have put forward do not fall into that category and, in the circumstances, I do not see … that I can find they do fall within the category of people that the parties agreed would assess the value of the business.”

In summary, when the barrister for the first party asked the judge to rule on the appropriateness of the different skills of the authors of two separate valuations … between a well-qualified Accountant and a well-qualified Registered Business Valuer, it was the Accountant who did not hold the relevant qualifications needed. As closer scrutiny on the accountant’s actual work progressed, His honour asked questions of the accountants work and confirmed: –

• The accountants initial scrutiny and investigation also included scrutiny (of the business) on behalf of a possible investor – a person identified as a “co-investor” of the accountant in
  businesses.
• The accountant received just two sheets of paper, and whilst requests were made for “proper books” no other information was provided.
• The accountant “made an offer” on the basis of that limited scrutiny.

The limited work the accountant actually performed, and on the facts, that his opinion of value was derived solely from summarised financials (two sheets of paper) was incredibly risky.
The accountant actually made an offer to buy on behalf of his third party; a “co-investor” This leads me to believe the accountants role was neither sufficiently identified in scope, nor
sufficiently independent and would never be admissible. Indeed, his honour commented on this, but was not ultimately required to rule on independence.

Continuing on the minor point of scope of work; His honour baulked at permitting the admissibility of the work performed by the Chartered Accountant. He rejected the work on this basis… “What is in issue is whether the value – the methodology that is adopted, is appropriate for valuation of this type of business.

The party reliant upon the accountants’ valuation lost – because that valuation was not accepted…

Summary.

Reliance on work that is not fit-for-purpose, that cannot be defended by its author on the basis of scope, process and methodology adopted; will fail. A valuation and a valuer must be, and be seen to be, truly and factually independent. A Registered Business Valuer has undergone a process of education, testing, assessment and ultimately accreditation by a professional body. That person is recognised as meeting the professional standards of the assessing body and they hold their qualification by virtue of the bodies professional and ethical conduct.

Kevin Lovewell is a Registered Business Valuer, skilled in valuations for court applications. An Intermediary in Business Transfers and sales in Australia. He is also an Accountant – retired from public practice. He holds the following qualifications. B.Bus (Accy). MBA (QUT). RBV.

Disclaimer: The views expressed in this article are those of the Writer. The information is not meant to be exhaustive. Readers are responsible for making their own inquiries and assessments as to the truth and accuracy of all the information given and should seek advice from professionals. No liability (in contract, tort or otherwise) will be accepted for any loss or damage incurred as a result of reliance upon any material contained in this publication or any information or advice provided in this publication or incorporated in it.

Kevin Lovewell
M: 0401 308 385
P: 1300 551 757
E: Click here to contact Kevin Lovewell
Member & Registered Business Valuer
Australian Institute of Business Brokers

Jessica Holbrook
P: 1300 551 757
E: Click here to contact Negotia Group
Business Analyst