Short answer
In a full valuation, the valuer decides what work is needed and reaches a conclusion of value. In a calculation engagement, the valuer and client agree a narrower set of procedures in advance, and the result is a calculated value. A calculation can suit early planning. A figure others may test usually needs the full report.
Three kinds of engagement, not two
The terms come from APES 225 Valuation Services, the valuation standard for members of Australia's professional accounting bodies. It separates three kinds of work by who decides how much gets done.
- Valuation engagement (a full valuation): the valuer is free to do whatever work a reasonable and informed third party would expect, and reaches a conclusion of value.
- Limited-scope valuation engagement: something stops the valuer doing that work, such as missing records, and it could materially change the answer.
- Calculation engagement: the valuer and client agree the methods and procedures up front. It generally leaves out work a full valuation includes, and the result is a calculated value, one figure or a range.
Under APES 225, a limited-scope or calculation report states that a full valuation may have produced a different result. That sentence travels with the number.
What actually changes in the work
On paper the two can look alike. The difference is what stands behind the figure. In a full valuation the valuer tests earnings and add-backs against the records, weighs customer concentration and key people, and cross-checks the method. A calculation does only what was agreed, often from figures as supplied.
When each one suits
A calculation can be a sensible first step when the number stays inside a planning conversation: deciding whether a full valuation is worth commissioning, or seeing whether you are anywhere near a small business CGT concession threshold such as the maximum net asset value test.
A full valuation report generally suits figures other people may test: a price between shareholders, a sale, a transfer between entities, or a market value in a tax return. The ATO's valuation guidance says the onus for a replicable and defensible valuation stays with the taxpayer, and the ATO may review it. Your tax adviser decides what evidence is enough.
How to tell which one you are being offered
- Who chose the method: the valuer, or an agreed list?
- Were the earnings and add-backs tested, or taken as given?
- Does the report give a conclusion of value or a calculated value?
- Does it say a full valuation may differ?
Price alone will not tell you: read the scope in the engagement letter. Accountants referring a client can help by saying what the figure is for.
Read the full guide
- What is a business valuation?A business valuation is a reasoned, independent opinion of what a business, or an interest in it, is worth at a stated date for a stated purpose...
- Business valuation for CGT purposesCGT is usually worked out from real numbers: what you paid and what you received. When there is no price, or the price was set between related...
- Business Valuation for AccountantsBusiness valuations for your clients, independent of your firm and without the administrative burden. Independent Business Valuation values the...
- Market value at 30 June 2027: what a CGT valuation must showWhat market value means when a business or shareholding is valued as at 30 June 2027: the hypothetical sale, one date without hindsight, and the...
- How a valuation worksThe steps, what we analyse and what the report contains.
- What a valuation costsOne fixed fee for turnover under $10 million, confirmed in writing before we start.
Related questions
Can a calculation be turned into a full valuation later?
Often, because much of the information carries across. The valuer still does the remaining work, and the conclusion of value may differ from the calculated value.
More short answers
- Who can value a business for tax purposes?There is no formal admissions board for business valuers in Australia. The ATO’s guidance says a valuation’s acceptability usually depends on the...
- Why do business valuation quotes vary so much?Mostly because quotes cover different work. A full valuation report reaches a conclusion of value; a calculation follows methods agreed in advance...
- What information is needed for a business valuation?Usually three years of financial statements and tax returns, current management accounts, the ownership documents such as the constitution, share...
- Do the small business CGT concessions still apply after 1 July 2027?Yes. All four small business CGT concessions continue after 1 July 2027. From the income year that includes that date, the 50% active asset reduction...
Sources
Updated
General information only, not advice about your circumstances. A valuation depends on the facts of the business and the purpose it is for.