Introduction

The International Valuation Standards Council (IVSC), an independent, non-profit organization which serves the industry for over 25 years, unveiled its proposed new “International Valuation Standards” (IVS). The IVS was expected to be effective in 2011. It sets out guidance for valuation professionals to analyze and evaluate a wide spectrum of assets and cope with the latest changes in financial landscape.

The IVSC was originated amid the need identified by a number of professional bodies for uniformity in valuation approaches. It strives to maintain the credibility of valuation reports by providing a framework for the delivery of fair and consistent valuation opinions. The first edition of IVS was published back in 1985. Over the past 25 years, the standards have become widely recognized and accepted by the valuation community and a wide range of regulatory organizations including the Financial Services Authority of the United Kingdom, the Securities and Futures Commission of Hong Kong, the Securities and Exchange Board of India and the European Public Real Estate Association.

Valuations are relied by the financial markets for various purposes, including financial reporting, merger and acquisition, private equity investment, strategic business development, regulatory compliance and internal control, as well as exploring valuable investment opportunities. The emphasis of fair value accounting in the financial reporting standard over the last decade has made fair value measurement of financial assets and liabilities to become mandatory for most of the listed companies across the globe. It calls for a need of standardized guidelines which comply with the International Financial Reporting Standards (IFRS) to measure the value of today’s more innovative and complex financial instruments such as derivatives, mortgage-backed securities and other structured financial products.

Summary of the Proposed Standards

The proposed standards of international valuation practice were aimed to improve clarity and consistency in the application of valuation standards internationally and to address concerns that have been raised amid the global financial crisis.

The subjects of focus in previous editions of the IVS are more accessible to valuation practitioners. However, market participants have sound out that the lack of proper understanding of valuation was one of the factors that lead to the financial crisis. In light of the opinion, the focus of the proposed standards is more dedicated to the users who relied on valuations.  The new IVS suggests a more transparent valuation process that would benefit the users in their decision making process.

The IVS has three main sections: (1) the General Standards; (2) the Application Standards; and (3) the Asset Standards, which cover valuations for almost every type of asset from traditional assets such as machinery and equipment to the first proposed standard for financial instruments. The IVS also reflects current developments in the International Financial Reporting Standards (IFRS), which increasingly require the fair values of assets and liabilities. Major highlights of the IVS are as follows: 

• The value of an asset depends on the basis of value used, which reflects attributes including the relationship and motivation of the parties and the extent to which the asset is exposed to the market. The IVS include definitions of several bases of value such as fair value, investment value and market value. The IVS defines fair value as a price that is fair to two identified parties, while fair value under IFRS is defined as the value to market participants generally. This clarification is of the best interest of end users as the appropriate basis will vary depending on the purpose of valuation.
 
• The IVS defines that a valuation intended to reflect a market price would need to take into consideration market conditions and information available at the valuation date, rather than some adjusted or smoothed price that is intended to reflect a return to equilibrium.
 
• The IVS classifies valuation techniques into three approaches: (1) the direct market comparison approach; (2) the income approach; and (3) the cost approach. The direct market comparison approach is stated to be a preferred choice when the direct observable prices for identical or similar assets are available.
 
• The IVS provides an overview of relevant accounting literatures together with a high level description of the scope of work required, valuation approaches and valuation reporting. These allow greater flexibility to valuers to tailor valuation models that is best fit to the subject asset while complying with the accounting standard and maintaining a high level of transparency.

In addition to the proposed standards, IVSC have working groups to address the technical issues in valuations and publish technical information papers to ensure practitioners are able to utilize the latest valuation techniques.

BMI Appraisals Limited strives to provide best practices in valuation. To meet the increasing demand for valuation services, we have a team of seasoned and qualified professionals including surveyors, CPA, AICPA/ABV, RBV, CFA and FRM holders with the highest ethical standards while tailor-making valuation solutions for your aimed business strategy and development goal. Should you have any enquiries, please do not hesitate to contact Dr. Tony Cheng, tel: +852 2593-9633, email: 這個 E-mail 地址已經被防止灌水惡意程式保護，您需要啟用 Java Script 才能觀看 .