Transcript Ethical Issues in Business Valuations

Ethical Issues
in
Business Valuations
- CA Avineesh Matta
Ethics
“Whether men understand it or not, they are
impelled by that power behind to become
unselfish. That is the foundation of morality. It
is quintessence of all ethics, preached in any
language or any religion, or by any prophet in
the world. “Be thou unselfish”, “Not “I”, but
“Thou” – that is the background of ethical
codes.”
- Swami Vivekananda
Ethics….
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Crucially important that our thoughts and actions be
governed by ethical values and habits.
Basis of ethics is to become more and more self
less.
Knowledge of the importance of virtue does not deter
people from moving to the evil side of things. This is
the inscrutable illusion covering the consciousness
of man, says the Vedanta.
Ethics and Success
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Value centered perfection, and not ‘material success’
as the ultimate goal of every human being.
Unnatural use of one’s capacities in pursuit of wealth
for its own sake.
Success achieved without minding the prohibitions of
moral law brings grief in the wake of achievement.
– Saint Tiruvalluvar
Try not to become a man of success but rather
try to become a man of value.
Albert Einstein 1879-1955
Ethics in businesses and professions
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Productive enterprises have an implied
contract with society
Stockholders to stakeholders
Gandhi on Entrepreneurial Ethics
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Truthfulness in conduct of business is reflective of
image of the Nation.
Seven Social Sins:
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Politics without Principles
Wealth without Work
Commerce without Morality
Knowledge without Character
Pleasure without Conscience
Science without Humanity
Worship without Sacrifice
Wealth without Work and Commerce
without Morality
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Inspired by Ruskin’s on idea of bread-labour.
Concept of Trusteeship in Business
Everything finally belongs to the Society
Trusteeship provides a means of
transforming the present capitalist order of
society into an egalitarian one
Need for Ethics
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Social Contract
Guidance to operate business, professions
Business Ethics is the set of principles or
reasons to govern the conduct of business –
at individual or collective level by the
application of ‘ethical reasoning’ to specific
business situations and activities
Being Ethical
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Awareness of
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Need to comply with rules, laws of the land,
customs and expectations of the society, the
principles of morality, policies of organization or
institution, general concerns for others and
fairness
How the products and services of an organization
or institution and the actions of its members, can
affect its employees, the community and society
as a whole, either positively or negatively.
Morals and Ethics
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Ethics derived from Greek ‘Ethos’, means
character
Root word for Moral is Latin ‘mos’, meaning
custom
Character as to individual v. customs as to
group over time
People have character; Societies have
custom.
Ethical Dilemmas
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Many issues seems straight forward and
easy to resolve but are not always true
Making choices amongst alternatives
Questions between right and wrong
Conflict between right and right
Benefits of Ethics
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Improved society
Maintain moral course in turbulent times
Cultivate strong team work and productivity
Supports employee growth
Ensuring policies are legal
Avoiding criminal acts of omission and lowering fines
Managing values of quality, strategic planning and
diversity
Strong public image
Business Valuation - Stakeholders
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Client
Third party Users placing reliance
Researchers
Society at large
Appraisal Practice
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ASA defines the term as it applies to the following
four operations, singly or in combination
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Determination of the value of property
Forecasting the earning power of property
Estimation of Cost of Production of a new property,
Replacement of existing property by purchase or production
of equivalent property, Reproduction of an existing property
(identical)
Determination of non-monetary benefits or characteristics
that contribute to value
Ethics in Business Valuation
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Importance
Judgmental Call
Opinions
Biases
Public confidence
Fiduciary relationship – Appraiser and those
rely on his findings
Ethics - Canadian Institute of Business Valuators
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Preamble –
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Assumption of highest level of responsibility for
maintaining the regards for profession, other
professionals and public
Commitment to a high standard of behaviour,
honesty, prudence, competence, truthfulness and
impartiality
Institute and the public will refer to the Code of
Ethics as a benchmark in the measurement of a
member’s Professional Behaviour
Ethics - Institute of Business Appraisers
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Member assumes an obligation beyond any imposed by law
Independence
Disinterestedness
Member shall be responsible for all analysis tools used
including software
Data non disclosure and confidentiality
Fee, false or misleading advertising
Not to commit an act discreditable to the profession
Plagiarism an unethical practice, acknowledge source
American Society of Appraisers
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Principles of Appraisal Practice
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Primary duties, responsibilities and Obligations
Code of Ethics
Ethics – American Society of Appraisers
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Appraisers Primary Duty, Obligations and
Responsibility
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Determine and describe the Apposite kind of Value or
Estimated Cost in terms of engagement
Determine Numerical Results with high degree of Accuracy
in terms of appraisal objectives
Avoid giving false numerical figures
Attain Competency and to practice ethically
Professional Character of Appraisal Practice
Responsibility to third parties
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Appraiser’s Obligations to His Client
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Reach to accurate conclusions without clients wishes
Confidential Character of an Appraisal Engagement
Give Competent Service
Relating to Giving Testimony – not to suppress or over
emphasize
To Document the Appraisal Testimony
Serving more than one Client in the same matter
Agreements and Contracts for Appraisal Services
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Appraiser’s obligations to other Appraisers
and to the Society
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Protection of Professional Reputation of other
appraisers
Relative to the Society's Disciplinary Actions
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Obligation to report any violation of byelaws, code, etc.
by any other member to the Society
Cooperate with Society and its Officers in proceedings
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Appraisal Methods and Practices
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Various kinds of Value
Selection of Appraisal Method
Fractional Appraisals
Contingent and Limiting conditions affecting an Appraisal
Hypothetical Appraisals – only for legitimate purpose
Denial of pertinent Data
Range of Value
Value or Estimated Costs under varied Hypotheses
Inspection, Investigation, Analysis of Subject Property
Collaboration and Use of other professional’s services
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Unethical and Unprofessional Appraisal Practices
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Contingent Fee
Percentage Fee
Disinterested Appraisals
Responsibility connected with Signatures on Report
Advocacy
Unconsidered Opinions and Preliminary Reports
Advertising and Solicitation
Misuse of Membership Designation
Disciplinary Action - causes
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Appraisal Reports
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Description of subject property
Statement of Objectives of Appraisal Work
Statement to Contingent and Limiting Conditions
Explanation of Appraisal Method Used
Statement of Appraiser's Disinterestedness
Communicate each Analysis, Opinion and Conclusion – not
Misleading
Recertification Statement
Signatures and Dissenting Opinions
Ethics – Institute of Chartered
Accountants of India
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Similar basic premise
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Fundamental Principles
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Credibility
Professionalism
Quality of Services
Confidence
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional Behaviour
Technical Standards
Need to take view in harmony with current regulatory framework of
conduct as a member
Ethics – What to do?
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Comply with Indian Valuation Standards
when in place, in transition rely on
International Standards
Subrogate in user’s shoe
Listen to conscience
Be a man Superior
The mind of the superior man is conversant
with righteousness; the mind of the mean
man is conversant with gain.
- Confucius 551 B.C. - 479 B.C.
Thank you