Compliance activities and market valuations
We may review a market value as part of our compliance processes. Generally, we do this by considering the tax risk associated with the market value, and the risk in the market valuation process itself.
Tax risk associated with market value
Generally speaking, we determine tax risk by considering the likelihood of non-compliance with a tax law and the consequences related to that non-compliance.
In assessing likelihood, consequence and tax risk associated with a valuation, we usually consider the following:
- the value of the asset or assets
- the type of asset or assets involved (intangible assets are more likely to increase risk)
- the materiality of any potential tax adjustment
- the complexity of the valuation process, and
- the documentary evidence supporting the valuation.
Valuation process risk
We generally use valuers to confirm whether the market value is acceptable. They usually review the valuation process to see if it complies with accepted valuation industry practice. Broadly, the review involves looking at:
- how adequately you documented your process
- which market value definition you used
- how appropriate your method was, and
- what assumptions and information you relied on.
At the conclusion of the review, the valuers provide us with a report on the valuation which may include an estimate of the market value (or likely range) of the asset or assets, based on data available to them at that time. When we receive the report we use our standard risk assessment procedures to decide whether to take further action, such as an audit.
Table F1 below shows how we review the valuation process and documentation risk.
Table F1: Risk matrix for quality of the valuation process and documentation
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High
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Medium
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Low
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Appropriateness of methodologies
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Assuming continuation of existing use, the valuations do not sufficiently demonstrate that:
- methods are consistent over similar asset types
- methods are the most appropriate, and
- appropriate data was used.
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Assuming continuation of existing use, the valuations demonstrate mostly that:
- methods are consistent over similar asset types
- methods are the most appropriate, and
- appropriate data was used.
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Assuming continuation of existing use, the valuations demonstrate fully that:
- methods are consistent over similar asset types
- methods are the most appropriate, and
- appropriate data was used.
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Qualifications of person undertaking valuation
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Person undertaking the valuation can demonstrate few, if any, of the following attributes:
- appropriate knowledge and industry experience
- professional membership
- subject to external regulation
- retains specialist advice where appropriate, and
- holds appropriate licences or authorities.
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Person undertaking the valuation can demonstrate most of the following attributes:
- appropriate knowledge and industry experience
- professional membership
- subject to external regulation
- retains specialist advice where appropriate, and
- holds appropriate licences or authorities.
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Person undertaking the valuation can demonstrate all of the following attributes:
- appropriate knowledge and industry experience
- professional membership
- subject to external regulation
- retains specialist advice where appropriate, and
- holds appropriate licences or authorities.
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Use of supporting methods
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No cross-check of valuation where it would have been appropriate.
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Single cross-check of valuation where appropriate.
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Valuation cross-checked with other methods where appropriate.
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Integrity of process
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Person undertaking valuations cannot demonstrate:
- appropriate experience
- basis of engagement subject to external regulation
- professional relationship, and
- access to information.
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Person undertaking valuation can demonstrate most of the following attributes:
- appropriate experience
- basis of engagement
- subject to external regulation, and
- professional relationship access to information.
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Person undertaking valuation can demonstrate:
- appropriate experience
- documented basis of engagement subject to external regulation, and
- professional relationship access to information.
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Information supplied in the market valuation report
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Report does not include enough of the following information required by the ATO to understand the market valuation report:
- description of the assets valued to enable identification purpose and context of valuation specific market value date or period to which valuation relates date valuation was commenced and completed details of the methods used information the valuation is based on details of all assumptions used.
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Report includes most, but not all, of the following information required by the ATO to understand the market valuation report:
- description of the assets valued to enable identification purpose and context of valuation specific market value date or period to which valuation relates date valuation was commenced and completed details of the methods used information the valuation is based on details of all assumptions used.
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Report includes all of the following information required by the ATO to understand the market valuation report:
- description of the assets valued to enable identification purpose and context of valuation specific market value date or period to which valuation relates date valuation was commenced and completed details of the methods used information the valuation is based on details of all assumptions used.
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Use of existing valuations
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No documentation as to the relevance of earlier valuations or inadequate documentation of changes.
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Adequate documentation as to the relevance of earlier valuations and/or adequate documentation of changes.
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Complete documentation as to the relevance of earlier valuations and/or complete documentation of changes.
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Sections within Part F: ATO processes
Last Modified: Friday, 24 August 2012