Asset valuation ensures accurate reporting on balance sheets to avoid failed accounting audits, tax liability issues, and fraud suspicions. Valuation of assets like shares and bonds are easy, but intangible assets like copyrights and real estate require unique valuations. Professional asset valuation is critical for IPOs, mergers, and acquisitions.
Asset valuation is a procedure in which the value of an asset is determined. This is done to confirm that the value is accurately and properly reported on balance sheets. If assets are not valued properly, it can create a skewed value on accounting documents which in turn can lead to failed accounting audits, issues with tax liability, and other issues.
In some cases, the assets are relatively easy to value. For example, if a company owns shares in another company, it may look at the current trading price of those shares at set intervals for asset valuation purposes. Similarly, assets such as bonds and other securities can be valued because they have public and trusted values.
There may be other types of assets that have more unique and dependent valuations. In these cases, the valuation of assets becomes more complicated. Intangible assets, like copyrights, for example, are difficult to allocate. Similarly, assets, such as real estate, require an evaluation of comparable real estate and current market conditions to obtain an accurate and reliable valuation that reflects the fair market value of the asset in question.
If assets are overvalued, a company may appear to be worth more than it is on its public reports. Undervalued assets, on the other hand, set a company up for an abnormally low value and can create problems with tax liability because tax authorities may determine that assets are undervalued and recalculate a company’s taxes based on this information. Repeated errors in asset valuation can also raise suspicions of fraud, rather than innocent errors.
Finding the current value of an asset may require the help of someone who specializes in asset valuation. These financial professionals can review the documentation associated with an asset, examine the asset itself if necessary, and use their expertise along with standard accounting practices to arrive at an accurate, current, and fair value for an asset.
This process is especially critical in cases where companies are preparing to make an initial public offering or are negotiating with other companies in an acquisition or merger agreement. In these cases, scrupulous evaluation of the company’s assets and the value of the company as a whole is an important part of the deal. This information may also be reviewed and audited by regulators and government officials to confirm that it is correct.
Smart Asset.
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