Accountants

Social Teaser Line The riskiest part of a valuation isn’t the numbers, it’s you. It’s critical that business valuers can spot bias, manage conflicts, and protect your professional reputation before it becomes someone else’s problem. Most valuers are not in the habit of fudging numbers. In fact, most accountants would rather walk barefoot across Lego than knowingly issue a dodgy report. But bias rarely arrives waving a big red flag. It tends to creep in quietly, disguised as logic, experience, loyalty, or sometimes just familiarity. In business valuations, it’s not just about being objective; it’s also about appearing objective, because the minute someone starts questioning whether your report has been influenced, fairly or unfairly, your credibility can disappear very quickly. The perception of independence matters almost as much as independence itself. Consider the classic scenario where a long-standing client asks you to prepare a valuation. You know the business well, you probably prepared the accounts, you know the family, the history, the headaches, and over the years you have heard all their stories about businesses in the industry selling for “five times EBITDA all day long”, or how somebody apparently offered them millions for the business over lunch one afternoon. Before long, those conversations start becoming part of the background noise in your thinking, and that’s usually where things start getting dangerous because familiarity has a habit of slowly lowering your guard without you even noticing it. You stop questioning assumptions with the same level of rigour, you stop digging quite as deep, and sometimes you do not even realise it is happening. Unfortunately, even if your valuation is technically sound, if it looks like you have leaned in favour of your client, or against them, depending on the purpose of the engagement, the damage may already be done. The ATO will not care that you meant well, your professional body will not care that you have known the client for twenty years, most assuredly your insurer will not care, and courts tend to be equally unimpressed by good intentions. So, what do you do? You need to get brutally honest with yourself. Ask yourself some key questions like: Did my practice prepare the financial information used in this valuation? If so, do proper Chinese walls actually exist between the compliance team and the valuation team, or do we just say they do? Have I challenged management assumptions properly, or have I accepted them because I trust the client? Would I arrive at the same conclusion if this business belonged to somebody I had never met? Have all relationships, conflicts, and prior involvement been clearly disclosed? Because independence is not just about ticking some technical requirement off a checklist. It goes directly to your credibility, and once people start questioning that, the whole valuation can suddenly become a much bigger problem. And while we are talking about credibility, we should probably talk about confidentiality too, and not the textbook definition either, the real-world version. The “don’t casually discuss sensitive client information over Friday afternoon drinks” version. As valuers and advisers, we often have access to information that can affect transactions, disputes, settlements, tax outcomes, employment decisions, and inter-generational family relationships, and more. So loose conversations and careless handling of information can create have very real consequences. Once trust disappears, it is incredibly hard to rebuild. The same thing applies when you are writing the report itself. If you have used assumptions, limitations, or judgement calls, explain them properly. Every valuation methodology has limitations, every forecast has assumptions, and every capitalisation multiple involves judgement. Pretending otherwise usually just makes the report look less credible. A well-reasoned judgement that is properly explained is defensible, whereas a vague conclusion with no transparency tends to attract attention for all the wrong reasons. I also think younger valuers sometimes underestimate the importance of documenting their thinking process, not because you expect to end up in court on a regular basis… its quite rare even for specialist forensic accountants, but because valuation work involves interpretation, and reasonable professionals can disagree. It is quite normal and in fact entirely expected. What matters is whether somebody else can follow the path of reasoning that you took to arrive at your conclusion. It is also quite helpful when, inevitably, six months later when somebody asks how you got to a particular conclusion, you can easily follow your own thinking without needing a forensic investigation into your forensic investigation. There is absolutely nothing wrong with circulating draft valuations for discussion, clarification, or factual correction before finalisation. In many cases, it is the smart thing to do, but you need to control the process properly and make it very clear what is a draft, what is incomplete, and what assumptions are still being tested. Otherwise, draft versions develop a strange habit of being forwarded around the planet without context. And given that any valuation is worthless without context, that’s particularly dangerous. At the end of the day, ethics in valuation is not about ticking boxes or writing lengthy independence declarations that nobody reads. It comes down to trust; trust in your judgement, trust in your process, and trust in your ability to remain objective even when commercial pressure, client relationships, or emotion start creeping into the room. Just keep in mind that it’s not just that you are independent, it is just as important that you are perceived as independent. The numbers are rarely the biggest risk in a valuation engagement. It’s usually the human sitting behind them., Value My Business Now