In nowadays financial atmosphere, sophisticated investor utilises complex investment tools and we could help provide quantitative analysis of these derivatives and their potential impact on the financial statements. Financial derivative tools for either financing or investing purposes will include warrants, exotic options, callable or puttable convertible bonds, redeemable and puttable promissory notes, non-marketable and illiquid securities in private placement compared to transacting listed securities, forward contracts and futures, preferred shares and swap agreements, each of the mentioned derivatives will be deployed based on specific circumstances of each transaction.
Valuation for share-based payments under International Financial Reporting Standards (IFRS) 2 involves determining the fair value of equity instruments granted to employees as part of their compensation packages. IFRS 2 sets out the accounting requirements for share-based payment transactions, including share options, restricted stock units, and other forms of equity-settled compensation
Discover how ASA explain the concepts and nuances of business valuation so that the client could pursue new deals and unlock growth.
Our Capabilities
Our valuation services specialize in providing comprehensive and accurate assessments of financial instruments, particularly in accordance with the International Financial Reporting Standards (IFRS) 9 guidelines. We understand the criticality of adhering to the IFRS 9 standards when valuing financial instruments, as it ensures transparency, reliability, and consistency in financial reporting. Our team of valuation experts possesses deep knowledge and expertise in applying the specific methodologies and techniques required by IFRS 9 to determine fair values, impairment provisions, and classification of financial instruments. With a robust approach and detailed analysis, we deliver valuation solutions that meet the highest standards of quality and compliance. Whether it's assessing complex derivatives, structured products, or debt securities, our valuation services provide the necessary insights and support to help you accurately reflect the value of your financial instruments in accordance with IFRS 9.
Our development process of valuation of financial instruments include the following milestones:
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Identify the Equity or Debt or Hybrid Instrument: Determine the type of financial instruments being granted and understand the specific terms and conditions attached to these instruments.
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Identify the Valuation Date: Determine the specific date for which the valuation is being performed. This is typically the financial reporting date or any other relevant date specified by the reporting entity
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Determine the Relevant Market Data: Gather the necessary market data, such as prevailing interest rates, credit spreads, equity prices, and volatility, to assess the fair value of the convertible bond. This data is used as inputs in the valuation model.
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Estimate Expected Cash Flows: Project the expected cash flows of the convertible bond, considering the coupon payments, principal repayment, and potential conversion into equity. Cash flow projections should account for any contingent events, such as early redemption or changes in the conversion terms.
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Select an Appropriate Valuation Model: Choose an appropriate valuation model based on the characteristics of the convertible bond. Commonly used models include the Binomial Model, the Black-Scholes Model, or other sophisticated models that consider the bond's cash flows, conversion terms, market factors, and any embedded options or derivatives.
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Specific Terms and Conditions: Account for any vesting conditions attached to the share-based payment, such as service or performance requirements, that may impact the fair value of the instruments. These conditions should be factored into the valuation to determine the probability of meeting the vesting criteria.
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Impact on Financial Statements: We help companies accurately account for the cost of these compensation arrangements and provide advisory opinion of relevant information to stakeholders regarding their impact on financial statements
Additional Steps for Business Valuation Process for ESOPs
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Risk Assessment: Assessing the risks associated with the business is an essential component of the valuation process. Factors such as market risks, operational risks, legal and regulatory risks, and company-specific risks are considered to determine the appropriate risk-adjusted discount rates or capitalization rates.
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ESOP-Specific Considerations: Valuing a business for an ESOP requires specific considerations. These may include assessing the plan's terms, ESOP funding structure, repurchase obligations, potential dilution effects, and any unique characteristics of the ESOP arrangement that may impact the valuation.
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Compliance and Documentation: The valuation process for ESOPs must comply with applicable regulatory requirements, such as those set forth by the Internal Revenue Service (IRS) in the United States. Accurate documentation and reporting of the valuation results are essential for regulatory compliance and to support the fairness and defensibility of the valuation
ESOP-specific considerations
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ESOP Terms and Structure: The terms and structure of the ESOP, such as the vesting schedule, repurchase obligations, and any unique features, can affect the valuation. For example, if the ESOP has a significant repurchase obligation, it may impact the company's cash flow and value.
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ESOP Funding Structure: The funding structure of the ESOP, including how the ESOP acquires shares, whether through contributions, debt financing, or a combination, needs to be considered in the valuation. The method of funding can affect the company's capital structure and financial performance, which in turn can impact the valuation.
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ESOP Repurchase Obligations: ESOPs often have repurchase obligations, which require the company to buy back shares from participants upon retirement, termination, or other specified events. The magnitude and timing of these repurchase obligations can impact the valuation, as they represent a potential future cash outflow for the company.
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Dilution Effects: ESOPs can result in dilution of ownership for existing shareholders and potentially impact the value of their holdings. The valuation needs to consider the potential dilution effects of issuing new shares to the ESOP and the impact on the ownership structure and share price.
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Regulatory Compliance: Valuations for ESOPs must comply with applicable regulatory requirements, such as those set forth by the Internal Revenue Service (IRS) in the United States. These requirements may include compliance with the ERISA (Employee Retirement Income Security Act) regulations and the need to satisfy the "adequate consideration" rule, ensuring that the ESOP pays a fair price for the shares acquired.
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ESOP Governance and Fiduciary Duties: Valuations for ESOPs must consider the fiduciary duties of the ESOP trustees or administrators. These fiduciaries have a responsibility to act in the best interests of the ESOP participants, and the valuation should reflect the fairness of the transaction to ensure compliance with these duties.
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ESOP Plan Document and Valuation Date: The specific terms outlined in the ESOP plan document, such as the valuation date and the methodology to determine the purchase price of shares, need to be considered. The valuation should align with the plan document provisions to ensure consistency and compliance
Why Us
We understand the importance of accurate financial valuation in today's dynamic and complex business landscape. Valuing financial instruments is a critical aspect of understanding the true worth of investments, securities, and other financial assets. Our expert team of financial professionals specializes in providing comprehensive and reliable valuation services that help our clients make informed decisions, mitigate risks, and maximize the value of their portfolios. With our deep expertise in financial analysis, market research, and industry trends, we offer tailored solutions that ensure fair and transparent valuations of various financial instruments, including stocks, bonds, derivatives, options, and more. Trust our team to deliver precise and insightful valuations that empower you to navigate the ever-evolving financial markets with confidence.