Bestar Impairment Testing Engagement Letter
Bestar Impairment Testing Engagement Letter
ENGAGEMENT LETTER
Date: [Date]
To:
[Client Name / Board of Directors]
[Client Company Name]
[Company Address]
Attention: [Client Contact Name / Title]
Subject: Engagement for Independent Financial Reporting Valuation Services – Impairment Testing (FRS 36 / SFRS(I) 1-36 / IAS 36)
Dear [Client Contact Name],
We are pleased to provide this Engagement Letter setting out the terms and conditions under which Bestar Services Pte. Ltd. (“Bestar”, “we”, or “us”) will act as an independent valuer to perform a valuation engagement for [Client Company Name] (“the Company” or “you”).
1. Scope of Services & Objective
The objective of this engagement is to perform an independent valuation for impairment testing purposes in accordance with [SFRS(I) 1-36 / IAS 36 / FRS 36] Impairment of Assets.
Specifically, Bestar will assess the Recoverable Amount—defined as the higher of Fair Value Less Costs of Disposal (FVLCD) and Value in Use (VIU)—for the designated Cash-Generating Unit(s) (“CGUs”) and foreign operating subsidiaries set out below:
Primary CGU: [e.g., Core Singapore Operating Business / Goodwill & Technology Intangibles]
Incremental CGU(s) / Subsidiaries: [e.g., Malaysia Operating Entity (MYR), Indonesia Subsidiary (IDR)]
Valuation Date: [e.g., 31 December 2026]
Reporting Currency: [e.g., SGD]
Our work will result in a fully documented, defensible valuation report designed to meet the compliance and disclosure requirements of external auditors, financial reporting standards, and relevant regulatory bodies.
2. Multi-Currency CGUs & Foreign Subsidiary Valuation Framework
Where Cash-Generating Units or subsidiaries operate across multiple jurisdictions or derive revenue and incur costs in local foreign currencies, Bestar will apply the following framework in accordance with IAS 36 / SFRS(I) 1-36:
Functional Currency Cash Flow Modeling: Future cash flows for each foreign subsidiary or multi-currency CGU will be modeled in the functional currency in which they are generated to accurately capture local inflation rates, country-specific economic drivers, and local tax regimes.
Currency Translation & Spot Rate Consistency: Cash flows prepared in foreign currencies will be discounted using a discount rate appropriate for that specific currency and economic environment, or translated into the reporting currency ([e.g., SGD]) using spot exchange rates at the Valuation Date, adhering strictly to IAS 21 / SFRS(I) 1-21 (The Effects of Changes in Foreign Exchange Rates).
Country Risk Premium (CRP) & Sovereign Risk: Discount rates (WACC) applied to foreign subsidiaries will explicitly incorporate Country Risk Premiums (CRP), political risk adjustments, and local inflation differentials to reflect the risk profile of each foreign operating environment.
Transfer Pricing & Intercompany Cash Flows: Management must identify and disclose all intercompany transactions, management fees, royalty payments, and transfer pricing mechanisms across foreign entities so that cash flows can be appropriately adjusted to an arm’s-length basis where required for impairment testing.
3. Standards of Practice & Professional Qualifications
This valuation will be performed in accordance with internationally recognized valuation standards, including the International Valuation Standards (IVS).
The engagement will be led and executed by team members holding the Chartered Valuer & Appraiser (CVA) designation in Singapore. The CVA designation demonstrates our technical rigor, independence, and commitment to the professional standards established by the Institute of Valuers and Appraisers, Singapore (IVAS).
4. Valuation Approach & Methodology
Depending on the nature of the CGU and available financial data, we will apply appropriate and recognized valuation approaches:
Income Approach (Discounted Cash Flow / VIU): Estimating the present value of future cash flows expected to be derived from the CGU, incorporating management-approved financial forecasts, long-term growth rates, and an independently calculated Weighted Average Cost of Capital (WACC).
Market Approach (FVLCD): Analyzing market multiples of comparable publicly traded companies or recent precedent M&A transactions, adjusted for size, growth, and profitability differences.
Cost Approach (if applicable): Estimating the current replacement cost of physical or intangible assets, net of physical deterioration and economic obsolescence.
5. External Audit Defense & Regulatory Review Procedures
Recognizing the critical nature of financial reporting compliance, Bestar commits to actively defending our valuation methodologies, key parameters, and conclusions throughout your external audit and any subsequent regulatory review:
Direct Technical Engagement: Upon delivery of the Final Valuation Report, Bestar will participate in technical discussions, video conferences, or correspondence directly with your external auditors (and/or their appointed valuation specialists).
Audit Working Paper Support: We will provide reasonable underlying working files, financial models (subject to standard model protection controls), and citations for key valuation parameters (e.g., country risk premiums, foreign beta calculations, cost of debt, risk-free rates, terminal growth rates, and peer group selections) to satisfy the auditor's review requirements.
Written Query Resolution: Bestar will review and provide formal written technical responses to technical queries, audit technical memos, or audit clearance queries raised by external auditors or regulators regarding our valuation report.
6. Professional Fee Schedule & Payment Terms
A. Multi-CGU Structured Fee Schedule
Scope Component | Description | Fee (SGD) |
Primary CGU Valuation | Comprehensive valuation, DCF modeling, WACC determination, and full report preparation for the primary operating unit / goodwill block. | SGD 12,000 |
Incremental CGU #1 | [e.g., Malaysia Operating Entity – MYR Functional Currency] | SGD 5,000 |
Incremental CGU #2 | [e.g., Indonesia Operating Entity – IDR Functional Currency] | SGD 5,000 |
Total Fixed Professional Fee | Exclusive of GST and disbursements | SGD 22,000 |
Out-of-Pocket Disbursements: Billed at cost for specialized financial database licensing (e.g., Bloomberg, S&P Capital IQ peer data), capped at a maximum of 5% of total professional fees (SGD 1,100) unless prior written approval is obtained.
B. Billing & Payment Schedule
50% Retainer (SGD 11,000): Payable upon execution of this Engagement Letter prior to commencement.
40% Draft Completion (SGD 8,800): Payable upon delivery of the Draft Valuation Report.
10% Final Issuance (SGD 2,200): Payable upon delivery of the Final Valuation Report and audit sign-off package.
C. Audit Defense Rate Structure & Hour Caps
Included Baseline Coverage: The fixed fee above includes up to 10 aggregate hours of direct auditor consultation, technical query resolution, and working paper support.
Hourly Rates for Additional Audit Support: Should auditor inquiries exceed 10 aggregate hours due to extensive review, material changes in management's underlying projections, or CGU restructuring post-delivery, additional support will be billed at the following rates:
CVA Lead Partner / Director: SGD 450 per hour
CVA Senior Manager / Manager: SGD 300 per hour
Valuation Analyst / Support Team: SGD 180 per hour
Audit Defense Cap: Unless explicitly authorized in writing by the Company, additional out-of-scope audit defense work shall be capped at a maximum of 20 additional hours (SGD 9,000 maximum fee cap).
7. Responsibilities of Management
Provision of Information: Management will provide complete, accurate, and timely financial information, including historical financial statements, management forecasts, budgets, intercompany transactions, and local statutory filings for foreign entities.
Forecast Integrity: Management warrants that all financial budgets, projections, and underlying business assumptions provided represent the Company's genuine best estimates of future performance in each respective operating region as at the Valuation Date.
Reliance on Data: Bestar will rely upon the completeness and accuracy of all information and representations supplied by management without independent audit or verification.
8. Deliverables & Timeline
Deliverable | Target Timeline / Deadline |
Data Request List Issued | Within [X] days of signed engagement |
Management Discussions & Draft Review | [Date / X weeks after receiving data] |
Draft Valuation Report | [Date] |
Final Valuation Report | [Date] |
Audit Defense Support Window | During the financial year-end audit period |
Note: Timelines are contingent upon the prompt provision of requested financial data across all foreign entities and management availability.
9. Limitation of Liability, Indemnification & Confidentiality
A. Confidentiality
Bestar will treat all non-public information received from the Company as strictly confidential and will not disclose it to third parties, except as required by law, regulation, or your external auditors for financial reporting review.
B. Limitation of Liability
To the maximum extent permitted by applicable law, Bestar’s aggregate liability (whether in contract, tort, negligence, strict liability, or otherwise) arising out of or in connection with this engagement or the valuation services provided shall be limited strictly to the total professional fees actually received by Bestar under this agreement.
C. Indemnification & Hold Harmless
The Company agrees to indemnify, defend, and hold harmless Bestar, its partners, directors, employees, CVAs, and agents from and against any and all third-party claims, liabilities, losses, damages, costs, and expenses (including reasonable legal fees and costs of litigation or audit defense) arising out of or relating to:
Any misrepresentation, inaccuracy, or omissions in the financial forecasts, currency conversion rates, intercompany pricing, or operational data supplied to Bestar by management, board members, or local foreign entity representatives;
The unauthorized distribution or improper reliance on Bestar's valuation report by any party other than the Company and its external auditors for the specified purpose;
Any regulatory inquiry, legal proceeding, or tax review brought by domestic or foreign authorities in connection with financial statements incorporating our valuation results, except to the extent determined by a final court judgment to have resulted directly from Bestar's gross negligence, willful misconduct, or intentional fraud.
10. Acceptance of Terms
Please confirm your acceptance of the terms of this engagement by signing and returning the attached copy of this letter along with the retainer fee.
We appreciate the opportunity to work with you and look forward to delivering a robust, audit-defensible valuation.
Sincerely,
\
For and on behalf of Bestar
[Name of Partner / Executive]
Chartered Valuer & Appraiser (CVA)
Client Acknowledgment & Acceptance
I/We have read, understood, and accept the terms and conditions outlined in this Engagement Letter.
\
Authorized Signature
Name: [Client Representative Name]
Title: [Client Representative Title]
Company: [Client Company Name]
Date: [Date]
Typical Valuation Fee Ranges for Impairment testing under SFRS(I) 1-36 in Singapore
In Singapore, professional fees for independent valuation services under SFRS(I) 1-36 / IAS 36 (Impairment of Assets) vary based on the complexity of the Cash-Generating Unit (CGU) structure, the number of operating entities/jurisdictions, and the depth of auditor involvement required.
Below are typical fee benchmarks, key pricing drivers, and common billing structures used by Chartered Valuer & Appraiser (CVA) practices and boutique advisory firms in Singapore.
Typical Valuation Fee Benchmarks (Singapore Market)
Engagement Scope & Complexity | Description / Typical Profile | Fee Range (SGD) |
Standard / Single CGU | Single Singapore operating entity; straightforward DCF or market approach; standard Goodwill/Asset impairment test. | $8,000 – $15,000 |
Moderate Complexity | 2–3 CGUs; regional operating presence (e.g., Singapore + Malaysia/Indonesia); multi-currency inputs or specialized intangibles. | $15,000 – $30,000 |
High Complexity / Regional Group | Multi-jurisdictional group with 4+ CGUs; complex foreign exchange/tax considerations; multiple tier-1 auditor technical reviews. | $30,000 – $60,000+ |
Big 4 Accounting Firms | Full audit-firm advisory teams engaged for large public-listed entities or complex multinational conglomerates. | $50,000 – $120,000+ |
Key Fee Drivers
Number of Cash-Generating Units (CGUs): Fee structures typically set a base price for the primary CGU (e.g., SGD 10,000–12,000) and add a discounted incremental fee for each additional CGU (e.g., SGD 4,000–6,000 per extra unit).
Cross-Border Operations & Multi-Currency: Modeling financial cash flows in local functional currencies (e.g., MYR, IDR, VND, RMB) and calculating localized discount rates (incorporating Sovereign Risk / Country Risk Premiums) increases technical modeling hours.
Auditor Interaction & Defense Level: Engagements requiring direct participation in Big 4 audit clearance calls or responding to technical valuation memos from auditor specialists are priced higher or structured with explicit hour caps (typically 10–15 included hours, with additional CVA time billed at SGD 300 – SGD 500/hour).
Target Asset Nature: Valuation of specialized intangible assets (e.g., proprietary technology, brand names, customer relationships) alongside CGU Goodwill requires secondary valuation models (e.g., Relief-from-Royalty or Multi-Period Excess Earnings Method), which increases fee scope.
Common Billing Terms & Structure
Retainer Deposit: 30% to 50% upfront upon engagement letter execution.
Draft Deliverable: 40% to 50% upon issuance of the initial Draft Valuation Report.
Final Report & Audit Defense: Remaining balance (10% to 20%) upon delivery of the final signed CVA report or audit clearance.
Out-of-Pocket Expenses: Specialized financial database fees (e.g., Bloomberg, Capital IQ data for peer group betas and market risk premiums) are either included in the lump sum or billed at actual cost (typically capped at 5%–10% of fees).
How Bestar Singapore Can Help with Impairment Testing (SFRS(I) 1-36 / IAS 36)
Bestar Impairment Testing Engagement Letter
Financial reporting under Singapore Financial Reporting Standards (International) SFRS(I) 1-36 and IAS 36 (Impairment of Assets) requires rigorous, defensible, and audit-ready valuation models. For CFOs, finance directors, and audit committees, demonstrating that the carrying amount of goodwill, intangible assets, and Cash-Generating Units (CGUs) does not exceed their recoverable amount is one of the most scrutinized aspects of year-end reporting.
Bestar Singapore provides independent valuation services led by Chartered Valuers & Appraisers (CVA). We deliver fully documented, audit-defensible valuation reports designed to withstand the strict technical review of Big 4 and mid-tier audit specialists, regulatory bodies, and tax authorities.
Direct Answer Summary
How does Bestar Singapore assist with impairment testing?
Bestar provides independent, professional valuations under SFRS(I) 1-36 / IAS 36. Led by qualified Chartered Valuers & Appraisers (CVA) in Singapore, Bestar models Recoverable Amounts using Value in Use (VIU) (Discounted Cash Flow / WACC) and Fair Value Less Costs of Disposal (FVLCD) (Market Multiples). Bestar handles multi-currency CGUs, country risk premiums, intercompany transfer pricing adjustments, and offers end-to-end audit defense during auditor technical reviews.
Why Impairment Testing Matters Under SFRS(I) 1-36 / IAS 36
Under SFRS(I) 1-36, companies are required to test assets for impairment whenever there is an indication that an asset may be impaired. Furthermore, specific assets—including Goodwill, Indefinite-Lived Intangible Assets, and Intangible Assets Not Yet Available for Use—must be tested for impairment annually, regardless of whether impairment indicators exist.
+-------------------------------------------------------+
| RECOVERABLE AMOUNT |
| (Higher of VIU and FVLCD under SFRS(I) 1-36 / IAS 36) |
+---------------------------+---------------------------+
|
+------------------------+------------------------+
| |
v v
+------------------------------------+ +-----------------------------------+
| VALUE IN USE (VIU) | | FAIR VALUE LESS COSTS OF DISPOSAL |
| | | (FVLCD) |
| - Discounted Cash Flow (DCF) | VS. | - Market Approach (Multiples) |
| - Management-approved Projections | | - Precedent M&A Transactions |
| - Localized Currency WACC / CRP | | - Disposal Cost Deductions |
+------------------------------------+ +-----------------------------------+
Key Technical Trigger Terms
Cash-Generating Unit (CGU): The smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets.
Recoverable Amount: The higher of an asset's or CGU's Fair Value Less Costs of Disposal (FVLCD) and its Value in Use (VIU).
Impairment Loss: Recognized in profit or loss when the carrying amount of a CGU exceeds its recoverable amount.
Core Valuation Services Offered by Bestar
Bestar supports listed companies, multinational corporations (MNCs), and small-to-medium enterprises (SMEs) across Asia-Pacific with specialized impairment testing advisory:
Service Category | Scope & Standards Applied | Key Deliverables |
Annual Goodwill Impairment Testing | SFRS(I) 1-36 / IAS 36 mandatory annual assessment for CGUs containing goodwill. | Audit-ready valuation report, DCF model, sensitivity matrix, and WACC build-up. |
Intangible Asset Impairment | Assessment of customer relationships, patents, software, trademarks, and brand names. | Relief-from-Royalty or Multi-Period Excess Earnings Method (MPEEM) modeling. |
Multi-Currency & Regional CGUs | Valuations covering foreign operating entities (e.g., Malaysia, Indonesia, Vietnam, China). | Foreign currency cash flow models, Country Risk Premiums (CRP), and spot FX translation. |
Audit Defense & Technical Support | Direct engagement with client external auditors and auditor valuation specialists. | Working paper access, technical query resolution memos, and clearance discussions. |
The Bestar Valuation Process: Step-by-Step
Our structured four-stage process ensures transparency, regulatory alignment, and seamless execution.
1.1. CGU Identification & Data Gathering: Establishing baseline parameters and scoping.
Bestar works with management to review the organizational structure, identify appropriate Cash-Generating Units (CGUs), allocate goodwill/corporate assets, and issue a structured data request list.
2.2. Financial Modeling & WACC Calculation: Applying rigorous financial economics.
We build custom Value in Use (VIU) and Fair Value Less Costs of Disposal (FVLCD) models. We compute an independent Weighted Average Cost of Capital (WACC), incorporating risk-free rates, equity risk premiums, peer group betas, and local Country Risk Premiums (CRP).
3.3. Sensitivity Analysis & Draft Valuation Report: Stress-testing critical assumptions.
We perform multi-variable sensitivity testing on terminal growth rates, revenue growth assumptions, and discount rates. A comprehensive draft report is presented to management for technical review.
4.4. Audit Clearance & Final Delivery: Defending results to external auditors.
Bestar engages directly with your external auditors, providing technical explanations, working paper citations, and technical memos until the audit review is formally completed.
Key Benefits of Partnering with Bestar Singapore
Chartered Valuer & Appraiser (CVA) Leadership: Engagements are led by qualified CVAs adhering to the ethical and professional standards of the Institute of Valuers and Appraisers, Singapore (IVAS) and International Valuation Standards (IVS).
Proven Audit Defensibility: We anticipate auditor challenges on key parameters—such as terminal growth rates exceeding long-term GDP growth, inflation mismatches in discount rates, or unadjusted intercompany transfer pricing.
Cross-Border Expertise: Seamlessly handle complex group structures with foreign subsidiaries in foreign functional currencies (e.g., MYR, IDR, VND, USD, RMB).
Transparent Fee Structures: Clear, structured fees with baseline audit defense coverage built into every agreement.
Frequently Asked Questions
What credentials does Bestar hold for independent valuation in Singapore?
Bestar’s valuation team includes professionals holding the Chartered Valuer & Appraiser (CVA) designation in Singapore, recognized by the Institute of Valuers and Appraisers, Singapore (IVAS) and aligned with International Valuation Standards (IVS).
How does Bestar handle audit challenges on impairment assumptions?
Bestar provides direct audit defense support. Our CVA leads participate in technical review meetings with external auditors, provide supporting benchmark data (such as Bloomberg/Capital IQ beta and WACC calculations), and draft formal responses to auditor technical memos.
How are foreign subsidiaries and multi-currency CGUs valued under SFRS(I) 1-36?
Cash flows are modeled in the functional currency of each foreign entity to capture local economic conditions and inflation rates. Discount rates are tailored with country-specific risk premiums (CRP) and converted to the reporting currency (e.g., SGD) using spot exchange rates at the valuation date in accordance with IAS 21 / SFRS(I) 1-21.
Contact Bestar Singapore
Ensure your annual impairment testing withstands strict auditor scrutiny. Contact Bestar Singapore to speak with a Chartered Valuer & Appraiser (CVA).
Website: www.bestar-sg.com
Location: Singapore
Specialization: SFRS(I) 1-36 / IAS 36 Impairment Testing, Business Valuation, Financial Reporting Valuation, Audit Defense Advisory
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