ASIC CP 143 - Experts reports and independence of experts

ASIC has issued Consultation Paper 143: Expert reports and independence of experts: Update to RG111 and RG112. In CP143 ASIC proposes changes to its two regulatory guides dealing with content of expert reports (RG111) and independence requirements for experts (RG112).

Key proposals for changes to RG111 include:

• Synergies peculiar to a particular bidder should be ignored for valuation purposes.
• Where a transaction is judged to be "not fair", the expert should endeavour to place a value on the "reasonableness" factors.
• In demergers, the expert should endeavour to value the advantages of the transaction (to the extent reasonable practicable).
• Where an expert's valuation differs materially from the market price, plus a control premium, the expert should explain the difference.
• An expert will need to ensure that the expert is satisfied that it can rely on information provided by the commissioning party.
• Discounted cash flow valuation methodology should only be used for a start up or potential developments where there is a reasonable basis to conclude that the project will proceed - although the possibility of using a "warning statement" instead is flagged in the Consultation paper.
• The Commissioning Party should notify the expert if there is a significant change affecting the information in an expert report after it is issued, to allow the expert to consider the development and, if necessary, update the report.
• Reports will need to be prepared in accordance with normally applicable standards and guidelines, including the Valmin Code for mineral and hydrocarbon assets.
• Experts must maintain adequate working papers, and must review the operation of any financial model relied on - and record the results of that view.
• Commentary on how experts should conduct assignments concerning assessment of financial benefits given to related parties will be incorporated into RG 111.

In relation to independence, proposed changes to RG112 include:

• Incorporating a list of factors that a commissioning party should take into account (resources, qualification and technical expertise, experience, ability to meet timeframe, independence issues).
• A suggestion that appointment of an expert should be overseen by an independent director where management may be conflicted.
• That the commissioning party should not (generally) release the expert's conclusion in advance of the final report.

ASIC was seeking submissions by 17 December 2010, with a view to issuing updated regulatory guides in March 2011. Download the Consultation Paper here.