Tag Archives: Valuations

GAO Expert Valuation Report Refines Accounts and Capital Flow of Company

In a dispute between two Singaporean parties in a manufacturing venture in China, GAO Advisors prepared expert valuations and produced a comprehensive capital flow methodology to refine the venture’s accounts and to assess the efficacy of claims made.


The two parties were ex-classmates from secondary school, and in 2005 the Plaintiff hired the Defendant as the managing director in his company which he expanded to China in 1999. The Defendant took over operations of the China-incorporated company, which existed as eight separate corporate entities (“the Companies”) to disperse revenue and qualify as a small-scale taxpayer in China’s Value Added Tax (VAT) system.

The Defendant oversaw operations until his resignation in 2013. In that time, his primary responsibility was the management of the Companies’ monies. Thus, he was in charge of the company seals, which were necessary for the withdrawal of monies from their bank accounts. Upon his resignation, the Defendant gave the Plaintiff notice that business operations have ceased two months earlier, and informed of a self-procured division methodology of the remaining assets. He also withdrew a certain percentage of the assets as severance.

The Plaintiff disagreed with the amount withdrawn and appointed GAO to produce an investigative report for the Companies’ accounts and assess the Defendant’s methodology.

The Challenge

The Companies’ mode of operation posed a significant hurdle in the valuation process. The sole provider of capital for business operations was the Plaintiff’s parent company. Hence, the capital flow, as per standard protocol, followed the Companies’ bank accounts to the Defendant’s to the Plaintiff’s.

The existence of multiple bank accounts at each level of capital flow, the inconsistency in in-voice submission for bookkeeping purposes (many handwritten), and preference for cash dealings for ease of trade meant tracking and assessing capital flow was a challenge.

GAO’s Method

In tracking the Companies’ capital movement, GAO set out the following scope of work:

  • To engage in meetings and discussions with relevant stakeholders namely the two parties, the Companies’ bookkeepers, suppliers, and clients;
  • To review all the available records of the Companies’ capital movement in the relevant period including bank documents and financial records;
  • To review correspondence between the Plaintiff and the Defendant, as well as their suppliers and clients, to understand their personal and business relationship;
  • To ascertain the amount of monies withdrawn by the Defendant from the Companies’ bank accounts.


GAO produced two estimations for the monies in question, by taking two approaches to ensure fairness. These approaches include:

  1. Deducting the estimated amount the Defendant has withdrawn from the Companies’ accounts the (i) amount he had returned to the Plaintiff and (ii) the percentage of the Companies’ profit he was entitled to, as per his severance rights discussed earlier with the Plaintiff;
  2. Taking the splits of assets stated by the Defendant in his resignation letter.

With both approaches, GAO concluded that there were discrepancies between what the Defendant claimed was allegedly entitled to the Plaintiff and what the Plaintiff received. In short, the amount withdrawn by the Defendant was found to be overvalued than his entitled sum.

The refinement of accounts through GAO’s manual and machine tracing and forensic accounting methodology led to the submission of an amended SOC, leading to a consent judgment.

About GAO Advisors

GAO Advisors is a corporate financial advisory firm that provides strategy advice, transaction structuring and valuation services. It has acted as an Expert Valuation Witness to a number of matrimonial cases including  UTJ v UTK [2019] SGHCF 6, where it produced credible, fair and comprehensive assessments of the matters dealt with in its valuation reports. These valuation reports allowed the Court to arrive at a more just and equitable means of dividing matrimonial assets between the Parties. Other cases include:

  • Valuation of a family textiles business in which patriarchs were seeking to claw-back over $10 million in fraudulent withdrawals by next-generation family members.
  • Valuation of damages in a High Court case where over 125 club members, in one of the largest representative action suits in Singapore, acted against the club owner for breach of contract and the torts of deceit and negligence.

GAO Advisors’ data-driven approach to its operations and experienced team of valuation professionals sets it apart from its competitors.

Dispute Resolution Insights: Working with lawyers.

To download a copy of this article in PDF. Please click here.

The GAO Method guides us in writing concise, evidence-based reports. Expert reports should be almost directly admissible as materials to be used in court. From our experiences with lawyers and Singapore Courts, we have refined our methodology to include 4 key aspects that make our reports clear and accessible to our clients.

  1. Past experiences

We draw from our past experiences and deep research to look for precedent legal cases that can be used as support. We also work closely with lawyers and their associates in order to present the most appropriate precedent cases for specific issues brought up in defenses. Additionally, as a known name in the financial industry, we learn of many financial events or transactions that we then draw on as possible precedents to a case.

2. Detail and transparency

Our valuation methodology is detailed and transparent. We aim to produce all intermediate workings, methods and assumptions in our reports, so our clients can fully understand the financial picture behind any case. Our models are always dis-aggregated into smaller operations that can be appropriately valued, and then recombined to produce an accurate final value. We draw heavily on our partners’ years of experiences at major investment banks to construct a working financial model that is conservative and representative of any business.

3. Industry standards

We understand these standards and draw on our knowledge to provide support for our assumptions and methods. For example, instead of using book value (used more in accounting and regulatory reporting), we tend to use the Market and Income-based Approaches to value ongoing businesses that require future assumptions. We are able to provide supporting documentation for our assumptions because we fully understand our industry and the authoritative writings that participants trust.

4. Language and formatting

Our reports are structurally adaptable to court documents such as affidavits. Because we receive feedback from our lawyers as to what we can improve on, we have been able to make great strides in drafting documents that our clients can easily adopt. A quick comparison between a report we wrote in 2017 and the actual affidavit used in court will reveal that over 90% of our report was used verbatim in the affidavit – with only minor formatting changes.


Taking stock, assessing opportunities.

Takeaway: Accountants are a vital part of business functions, but are likely not the best choice for business valuation.

Over here at S2 Investments, most of the job requests we have can be broken down into two main categories:- transactional advisory services and business valuations.

In our firm’s transactional advisory practice, it is astounding the number of times clients have come knocking on my door to discuss the sale or divestment of their business and present me with a “Valuation Report” that has been prepared by their accountant or auditor.

What’s wrong with this, you say? Surely your accountant, given their knowledge of businesses along with their accounting skills backed by professional qualifications such as an ACCA or CPA, should be perfectly suited to valuing a business? Further to that, you might say that your accountant or auditor has innate knowledge of your business over the years, so who better to value your business than someone that has been running the numbers for you over the years?

The answer to the above questions based on the many “Valuation Reports” that I have perused over the years that have been produced by accountants and auditors is :- I would strongly disagree.

Many of the accountant or auditor produced “Valuation Reports” I’ve come across just doesn’t stack up at all. In fact, many of them are not valuation reports at all! 

They are simply a bunch of numbers neatly presented according to commonly accepted accounting standards (IFRS or GAAP) and sometimes they are accompanied by unsubstantiated calculations (e.g., 5X EBITDA = asking price). If your accountant or auditor has charged you for preparing a valuation report like this before, ask for a refund!

Your Accountant Doesn’t Sell Businesses

I am of the strong opinion that one of the most important pieces of knowledge a valuer should have is a keen understanding of the current marketplace conditions which are ever changing. A good valuer will have strong knowledge about what are the viable range of prices a buyer will pay for each corresponding business. In the end, a valuation report is useless if only the person the valuer and the client which is commissioning the report accepts the valuation stated.

As a case in point, I recall a recent accountant-produced valuation report for sale of a business, which stated that the valuation based on the book value of a particular printing company with all their assets was roughly 12M USD and the client was looking to us to help us find a buyer at that valuation. The client was absolutely convinced that 12M USD was a fair valuation. However, on further due diligence, we noted that the main asset which was valued at book value by the accountant was a leasehold building that had very restrictive covenants, amongst them one being on the change of ownership.

The valuation that the accountant produced and which the client paid a healthy five-figure sum for as there was many man hours spent on taking stock of the printing inventory was ultimately worthless. The accountant failed to distill the key values in the business and I can assure you that a business of this type would never transact in the marketplace for anything close to this — hence, the valuation report was a complete waste of money.

Your Accountant Most Likely Doesn’t Complete Valuations Very Often

Trust your accountant to do what they’re good at — let them calculate your EBITDA , or take stock of your present inventory value as in the former example, etc. Most accountants in Asia are also closely linked to company secretarial and book keeping work which is a specialty in itself, so unless your accountant is a specialist in business valuations, you should engage someone else to value your business. We would never offer to do book keeping and company secretarial services to our clients!

Unfortunately, many accountants in the hunt for fee revenue will take on engagements to complete business valuations, even though it is not their area of expertise, and not something they do very often.

This means a great deal of the accountant-produced valuation reports I’ve seen clearly demonstrate that the accountants responsible for them didn’t even pass Valuations 101. Just because an accountant promises that they can give you a high or low valuation for your business depending on your motivations, does not mean that this would be accepted by any other third party or in legal or arbitration proceedings. Why waste your money?

Your Accountant Is Not Independent

Many businesses and individuals have used the same accountant for years and years. Given the length of the relationship between client and accountant, accountants cease to be an independent, arm’s length advisor and instead become an advocate for their client. Most times, this works exceedingly well to the benefit of the client. However, when it comes to valuing your business, you should engage someone who can act at arm’s length and provide independent advice.

So Who Should You Engage to Value Your Business?

I’ve found the best business valuations are produced by practitioners who specialize in completing valuations. These practitioners have specialist knowledge and expertise in the field of business valuations, meaning their advice is grounded in experience and logic. If you needed heart surgery, you wouldn’t use your GP — you’d go to a specialist. The same applies to business valuations!

This is also why over here at S2 Investments, we tap on our network within GAO Group to staff specialists alongside our core execution team. If we are valuing a coal or iron mine, we will have a natural resource expert on the team who has transacted multiple deals before and are familiar with likely counterparties they might deal with such as SRK or SNC-Lavalin. Likewise, if we are valuing a consumer business, we will use a different expert to give deep insights and who understand the nuances of the consumer landscape. This ensures that the client gets the right information in a timely cost-efficient manner versus getting charged lots of man-hours for research.

Our sector experts alongside our core execution team, which has a well-rounded knowledge on the current state of the business sales marketplace, we know how different businesses are transacting in the marketplace, and on what prices and terms business buyers and sellers are completing transactions. Understanding the business sales marketplace is vital to producing logical and defensible valuations that stand up in the face of current market conditions.

So ask yourself this question: does your accountant or auditor tick all those boxes?

Contact us right away for our basic valuation package which will allow you to take a “health check for your company” to enable you to take stock, and assess opportunities today!

Footnote: To see the other options you have in getting your business valued, read this well-written article over at entrepreuner.com.  I would strongly recommend not going along the barbeque route!