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  • 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 market value

    Generally, we determine tax risk by considering the likelihood of non-compliance with a tax law and the consequences of that non-compliance.

    In assessing likelihood, consequence and tax risk associated with a valuation, we usually consider the:

    • value of the asset or assets
    • type of asset or assets involved (intangible assets are more likely to increase risk)
    • materiality of any potential tax adjustment
    • complexity of the valuation process
    • 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
    • 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.

    We assess risk based on the extent to which the valuation process and documentation meet the following criteria. For each criterion, the process and documentation would typically be assessed as:

    • low risk where the valuation fully demonstrates the listed attributes
    • medium risk where the valuation mostly demonstrates the listed attributes
    • high risk where the valuation does not satisfactorily demonstrate the listed attributes.
    Appropriateness of methodologies

    Assuming continuation of existing use, the valuation demonstrates that:

    • methods are consistent over similar asset types
    • methods are the most appropriate
    • appropriate data was used.
    Qualifications

    The person undertaking the valuation can demonstrate the following attributes:

    • appropriate knowledge and industry experience
    • professional membership
    • subject to external regulation
    • retains specialist advice where appropriate
    • holds appropriate licences or authorities.
    Use of supporting methods
    • Valuation is cross-checked with other methods where appropriate.
    Integrity of process

    The person undertaking the valuation can demonstrate:

    • appropriate experience
    • basis of engagement
    • subject to external regulation
    • professional relationship
    • access to information.
    Information supplied in report

    The market valuation report includes information required by the ATO:

    • 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 begun and completed
    • details of the methods used
    • information the valuation is based on
    • details of all assumptions used.
    Use of existing valuations
    • Documentation as to the relevance of earlier valuations and/or documentation of changes.

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      Last modified: 18 Aug 2017QC 21245