Method Selection explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Method selection is a professional judgement, and a defensible report justifies it rather than merely stating it. That means recording which approaches were considered, why the selected method fits the asset and the available data, why the alternatives were rejected, and how multiple indications of value were reconciled into a conclusion.
Method selection starts with the three approaches
| Approach | Works when | Fails when |
|---|---|---|
| Income | Future cash flows attributable to the asset can be projected with reasonable support | Projections are unreliable, or the asset does not generate identifiable cash flows |
| Market | Comparable transactions or quoted prices exist and are genuinely comparable | Comparables are scarce, stale, or require adjustments that cannot be made reliably |
| Cost | The asset is replaceable and reproduction or replacement cost is measurable | Value derives from earnings or position rather than from the cost of the asset |
A method that is theoretically superior but cannot be applied with reliable data will produce a less defensible answer than a method that is second-best in theory and well-supported in fact.
The point for the report is that this reasoning has to appear. "The market approach was not adopted because sufficient comparable transactions were not available" is a justification. Silence about the market approach is not.
What the report should record
- The approaches and methods considered — plural.
- For each rejected one, why it was rejected, tied to the asset, the data or the purpose.
- For the selected one, why it fits — the characteristics of the asset that make it appropriate.
- The inputs and their sources.
- Where more than one method was applied, the reconciliation and the weight given to each.
This mirrors the discipline in transfer pricing documentation, where the rule requires a description of the methods considered and the method selected — and the rejection reasoning is what shows the choice was reasoned rather than convenient.
Method selection does not end at reconciliation — the step most often skipped
Where two methods produce different indications of value, three responses are possible and only one is defensible:
- Not defensible: present a range and leave the reader to choose.
- Not defensible: average them without reasoning.
- Defensible: explain what drives the difference, assess which indication is better supported for this asset and purpose, and state the weight given to each with reasons.
A divergence between methods is information. It usually points to an assumption that one method is more sensitive to, and explaining it strengthens the report.
The IVS mandate for IBC engagements
Method selection in insolvency now operates inside a narrower frame. With effect from 1 April 2026, IBBI has mandated that all valuations conducted for IBC engagements must follow only the International Valuation Standards issued by the International Valuation Standards Council — removing the earlier latitude to follow any other internationally accepted methodology or a Registered Valuers Organisation's own standard.
The reason is directly relevant to defensibility: previously two valuers, each correctly following a different recognised standard, could nonetheless arrive at materially different answers. The mandate removes that source of divergence — and it also means a report that applies a non-IVS framework to an IBC engagement is exposed on that ground alone.
Method selection in distressed engagements is harder, not easier
Distress changes the method selection analysis at every point:
- Income approach — historical performance may be a poor guide, and management projections in distress require particular corroboration.
- Market approach — comparable transactions may be scarce, and transactions involving distressed sellers may not represent orderly market conditions.
- Cost approach — replacement cost can materially exceed what any buyer would pay for a business that cannot service its liabilities.
Each of those is a reason to explain the selection more carefully, not less.
Documenting the pre-valuation methodology discussion
In a CIRP the RP must convene a meeting between the registered valuers and the CoC before valuation work begins in earnest, at which each valuer explains the methodology and key assumptions to be adopted. Where the CoC perceives a material difference in approach between valuers at that stage, it has the opportunity to raise it.
That meeting is also a documentation opportunity. The methodology explained there should be the methodology the report adopts, and any subsequent change should be recorded with reasons.
Compliance checklist
- Record the approaches considered, not only the one adopted.
- Justify each rejection against the asset, data or purpose.
- Explain why the selected method fits this asset.
- Reconcile multiple indications and state the weights with reasons.
- For IBC engagements from 1 April 2026, apply IVS only.
- Take extra care with distressed inputs in each approach.
- Align the report with the methodology explained to the CoC, or document the change.
Common mistakes
- Stating the method adopted with no alternatives considered.
- Averaging divergent indications without reasoning.
- Using distressed transactions as market comparables without adjustment or comment.
- Applying a non-IVS framework to an IBC engagement.
- Departing from the methodology presented to the CoC without recording why.