The engagement letter decides what your valuation is worth before any analysis starts.

A valuation engagement letter is the written agreement, required under APES 225, that fixes the engagement type, purpose, basis of value and reliance terms before a valuer starts analysis. Prismi uses it to determine whether the finished report can be relied on by the ATO, a court, or a related-party transaction, or only by the commissioning party. A report is only as useful as the letter that scoped it.

Why the engagement letter matters more than most people assume

Most disputes about a valuation report are actually disputes that were decided at the engagement letter stage and only surface later. A report scoped as a calculation engagement cannot be retrofitted into a conclusion of value once the ATO or the other side in a family law matter asks for one. A report addressed only to the commissioning party cannot be handed to a bank, a co-shareholder or an incoming purchaser without a fresh reliance authorisation. None of this is a flaw in the analysis — it is a consequence of terms agreed in writing before the valuer opened the file. APES 225 requires the valuer to agree the engagement terms in writing before starting work precisely because these decisions are difficult to unwind afterwards. The letter is not paperwork to sign and forget. It is the document that determines what the finished report is actually worth to the people who need it.

The APES 225 terms that must be fixed before analysis begins

• ·Engagement type — Valuation Engagement (methodology selected freely, conclusion of value expressed), Limited Scope Valuation Engagement (freedom restricted by agreed limitations, disclosed in the report), or Calculation Engagement (agreed methods and procedures, calculated value only — expressly not a conclusion of value)
• ·Scope — the entity, securities or asset being valued, the valuation date, and any boundaries on what is and is not covered (e.g., a specific class of units, a single division, or the whole entity)
• ·Purpose — the specific use the report is prepared for, such as a small business CGT concession claim, a Division 7A transaction, a family law property settlement, or a shareholder buy-sell trigger
• ·Basis of value — market value (consistent with IVS 104, the Spencer v Commonwealth willing-but-not-anxious principle, and the ATO's 'Market valuation for tax purposes' guidance) for most tax matters, or another basis where the purpose requires it, such as fair value under a shareholders' agreement
• ·Reliance and restricted-use terms — who may rely on the report, for what purpose, and the express exclusion of reliance by anyone else
• ·Fee basis and independence terms — fixed fee agreed at engagement, with an explicit statement that the fee is not contingent on the value concluded
• ·Information the valuer will rely on versus verify, and the party responsible for supplying it

Restricted use and reliance clauses — who the report actually works for

Every Prismi report carries a restricted-use clause naming who may rely on it and for what purpose. Named parties typically include the engaging party, their accountant, and (where the purpose requires it) a nominated third party such as the ATO or the other party's legal representative in a settlement. This is not defensive drafting for its own sake. A restricted-use clause tells a reader exactly what the report was prepared to support, which is itself part of what makes the conclusion supportable if it is reviewed. It also protects the client: a report freely relied upon by parties it was never scoped for creates exposure the valuer did not price and did not agree to. Where a report needs to be relied upon by an additional party after the fact — a bank considering finance, an incoming shareholder, a court in a matter the report was not originally prepared for — that is a new reliance authorisation, sometimes a new engagement, not an assumption that the existing wording covers it.

Why contingent fees are prohibited and the independence declaration matters

APES 225 prohibits a valuer's fee from being contingent on the value concluded. The reasoning is direct: a fee that rises or falls with the number removes the independence the report exists to demonstrate. Prismi fees are fixed at engagement regardless of outcome, and every report carries a signed independence declaration from a senior reviewer. This is also why a target value cannot be agreed at intake. Where a client asks for a report to reach a specific figure, the answer is that we will say so and decline the engagement on those terms — not because the number is necessarily wrong, but because agreeing to it before the evidence is tested is the one thing that makes a report indefensible if it is later scrutinised. A reviewer — the ATO, an opposing valuer, a court — tests independence first. A contingent fee or a pre-agreed target fails that test regardless of how sound the underlying methodology is.

Information reliance — what the valuer assumes versus verifies

The engagement letter should state what the valuer will independently verify and what will be relied upon as supplied. Typically, financial statements are relied upon as prepared (not audited by the valuer), while ownership structure, related-party arrangements and add-back evidence are tested against supporting documentation where it is provided. This distinction matters because it defines the limits of the opinion: a valuation is not an audit, and the report should say so. Where information cannot reasonably be obtained, the engagement letter and the resulting report disclose the limitation rather than silently assuming a favourable answer. A report that is vague about what was verified invites exactly the question a reviewer will ask first — how do you know that figure is right — and a vague engagement letter is usually where that gap started.

Negotiating scope — when a calculation engagement is enough, and when it isn't

A Calculation Engagement suits a narrower set of circumstances than it is often used for: an internal management estimate, a preliminary figure to inform a negotiation before formal terms are set, or a low-stakes matter where no external party will test the number. It is materially cheaper because the valuer is not required to select methodology freely or defend a conclusion of value. It becomes the wrong choice the moment the report needs to withstand outside scrutiny: a small business CGT concession claim, a Division 7A transaction, a related-party transfer, a family law settlement, or any matter the ATO or a court might review. A calculated value is expressly not a conclusion of value under APES 225, and that caveat travels with the report wherever it is used. The scope conversation at engagement — what is this valuation actually going to be used for, and by whom — is the single decision most likely to determine whether the report does its job eighteen months later.

Which Prismi tier fits the engagement scope you need

Essential (from $1,495 + GST, 10–14 business days) is scoped as a valuation engagement for straightforward single-entity matters with a narrow purpose and no anticipated external reliance beyond the engaging party. Comprehensive (from $3,995 + GST, 15–25 business days) suits most tax-purpose matters — Division 7A, small business CGT concessions, restructures — where the report needs to name the ATO or the client's accountant as a permitted reliance party and multiple methodologies are tested. The Defensible Valuation File (from $8,995 + GST, 25–35 business days) is scoped for matters where dispute or formal review is likely and the reliance clause, evidence trail and methodology reasoning all need to withstand direct challenge. The Valuation Range & Scenario Review (from $12,995 + GST, 30–45 business days) suits complex adviser-led matters where multiple scenarios or reliance parties are contemplated at engagement. Retrospective valuation dates add $495 per historical date, additional entities are $750 each, and urgent matters can be accelerated at +30% of the base fee, subject to capacity. A calculation engagement is not offered where the stated purpose is a matter the ATO, a court or a third party may review — we will say so at the scoping stage rather than after the report is delivered. Prismi prepares independent valuations only — we are not a registered tax agent and do not provide tax or legal advice; whether a particular engagement type or reliance clause is right for your matter is a question for your accountant or lawyer.