Valuation date

Valuation date, also called appraisal date or evaluation date, is the day when the official valuation of an asset made by the valuator becomes valid. Each valuation model includes the valuation date, as a key element, it additionally affects both the internal and external factors that determine the value of the company, from which the valuator will be able to collect the necessary data, such as profit and valuation forecasts. The impact on the environment, both in the aspect of macroeconomics and microeconomics may unexpectedly and suddenly change.The principle of valuation must, however, be respected and consist in indicating the day on which and to the end of which the assessment of value must be carried out. Events that take place after this date may in no case be counted and taken into account.

When talking about mandatory takeover bid, the valuation date is exactly the day that precedes the moment of signing the contract. In the case of public procurement, the valuation date is the day before the meeting at which the final decisions are made.

The date of the valuation is the moment of a cutoff for the flow of information, thanks to which it is possible to determine the value. Therefore, according to the principle, only those data that were known or knowable on the day of the assessment are taken into account, not the factors and information that occurred after that date. This is because buyers should only be informed about the market value, which was based on data known on the day of valuation. However, events after the valuation date are in some cases foreseeable and cause changes in value, which is why there are exceptions. Interviews and meetings with management do not always happen close to the valuation date, therefore the valuator must assess all factors and circumstances and determine the appropriate date, which often depends on the goal itself.

When it comes to taxation, the valuation date means the day on which a given tax becomes payable and, in turn, tax-related declarations become due. The valuation date for the inheritance issue is one of the following dates:

• the date on which the delivery or payment takes place,
• the moment at which the individual acquires the rights to retain the assets for the successor,
• the date of retention of the assets.

Examples of Valuation date

• An example of a valuation date is when a company hires an independent appraiser to assess the fair market value of a business. The appraiser will use a specific date as the valuation date, which will be the date on which the appraisal is conducted. This date is typically chosen based on the most recent financial information available for the company, such as the most recent balance sheet or income statement.
• For example, a company may choose to appraise its business on December 31st, which would make December 31st the valuation date. This date would be used to assess the company's current market value based on its financials.
• In real estate transactions, the appraisal date is the date on which the appraiser conducts the appraisal of the property. This date is chosen based on the most recent sales data of comparable properties in the area, as well as any other relevant information this appraiser deems necessary to make an accurate assessment of the property's value.

Advantages of Valuation date

A valuation date is important to ensure that the valuation of an asset is accurate and up-to-date. The advantages of valuation date include:

• A valuation date serves as a snapshot in time and allows for a current assessment of the asset. This enables more accurate assessments since the valuator can consider the present economic and environmental conditions.
• A valuation date also helps to ensure that the data used by the valuator is up-to-date and relevant. This helps to minimize the risk of using outdated information when making a valuation.
• Additionally, a valuation date allows for a more reliable comparison of different assets over time. By using the same date for all assets, the valuator can make more accurate comparisons.
• Finally, the valuation date can help to identify any potential risks or opportunities associated with the asset. This can help the valuator make more informed decisions about the asset.

Limitations of Valuation date

Valuation dates have some limitations that should be taken into consideration. These include:

• The valuation date does not take into account the potential changes in the environment and the market after the date of valuation. Events that take place after the valuation date are not taken into account, so the value estimated may not reflect the true market value of the asset.
• Valuation dates often rely on incomplete information and assumptions. The valuator must use their judgment and experience to make assumptions about the future performance of the asset in order to arrive at a fair and accurate valuation.
• Valuation dates can be difficult to establish and may be subject to dispute. The valuator must be able to justify their chosen date, and this can be a challenge if there are multiple stakeholders involved.
• Valuation dates are often subject to change. Changes in the macro-economic environment, the market, or the asset itself may mean that the valuation date needs to be adjusted.

Other approaches related to Valuation date

• The valuation date can also be used to determine the price of the asset at the time of the transaction. This approach is known as the "fair market value" approach and takes into account the market conditions at the time of the transaction.
• Another approach to valuation is the "cost approach", which is based on the costs associated with replacing the asset or constructing a similar asset. This approach may also include the costs associated with improvements or depreciation of the asset since its purchase.
• The "income approach" uses the expected future income of the asset to determine its value. This approach is commonly used to value real estate, where the expected rent or lease payments are used to determine the value.
• The "comparative approach" compares the asset to similar assets in the market, taking into account factors such as location, size, and condition.

In summary, the valuation date is an important element used to determine the value of an asset. Different approaches can be used, such as the fair market value, cost, income, and comparative approaches. Each of these approaches takes into account different factors to determine the value of the asset.

Footnotes

Valuation date — recommended articles

Cost principle — Going-concern value — Statement of affairs — Time period concept — Annual Basis — Economic value of equity — Change in accounting estimate — Accounting Principles — Opening balance

References

• Business Valuations: Why Is The Valuation Date So Important?, (2017), Gryphon Valuation Consultants
• Draft Handbook on Valuation for Purposes of Resolution, (2019), European Banking Authority
• International Valuation Standards,(2017), International Valuation Standards Council
• Paschall M. B., (2002) Back to the Future, "The Quarterly Journal of the Business Valuation Committee of the American Society of Appraisers", Vol. 21. No.2
• Pospisil J., (2015) Valuation Date in the Process of M&A, Procedia Economics and Finance 25, p. 106-108
• The Valuation Date, (2018), Capital Acquisitions Tax Part 8
• What a difference a valuation date makes, (2014), Baker Tilly, Accountants and Advisors

Author: Justyna Wicek