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Recent developments in international valuation

Jay Shaw Jay Shaw

There is no doubt International Accounting Standards have contributed significantly to the globalisation of the business world, crucially providing reliable and comparable information to investors for decision-making purposes.

Similar progress is yet to be achieved in the sphere of international valuation and the valuation profession. However, the International Valuation Standards Council (IVSC) is currently making significant progress towards the development of high quality International Valuation Standards (IVS) to underpin consistency, transparency and confidence in valuations across the world.

Blazing a trail

Over the forty years since the inception of the International Accounting Standards Board (IASB), IASs have become well accepted and are now used throughout the world. They even extend as far south as my home in New Zealand, when we find time away from rugby and making films about hobbits.

The development of International Accounting Standards (IASs) has coincided with (and contributed to) the increasing globalisation of the business world, flowing from a desire by investors to obtain reliable and comparable information for decision-making purposes. There is no doubt IASs have enhanced both the quality and comparability of accounting information, and the accounting profession, globally.

Dark art or solid science…?

Although steps are being taken in the right direction, international valuation and the valuation profession have yet to develop this level of standardisation. This is a missed opportunity, given issues of value and valuation lie at the heart of many key business decisions, for example:

  • How much should I pay for this asset?
  • Is the security offered for this loan reasonable?
  • At what value should I transfer this asset to another jurisdiction?

The opinion-based nature of valuation, sometimes referred to as art rather than science, means that a degree of subjectivity will always exist.

However, a lack of uniform standards means there is often not even a consistent starting point. There remains wide variation in valuation bases, methods and approaches used to assess value. This makes it challenging to assess reasonableness, including any ‘like for like’ comparison with other assets. The assessment and evaluation of fair values for assets and liabilities disclosed in audited accounts is a key issue in valuation (and accounting) today.

Pressure from above

The 2008 financial crisis demonstrated the impact of poor quality valuations across a range of assets. Since then, regulators (including the US Securities and Exchange Commission) have expressed concerns about valuations and indicated possible intervention unless the valuation profession improves. The sentiment seems to be that if the profession does not get its ‘house in order’, someone else will do it for them. There is clearly a need for a more developed valuation profession.

Paving the way

The IVSC has an important role in this development. It is an independent, not-for-profit organisation that acts as the global standard setter for valuation practice and the valuation profession. Its core objectives are to develop high quality IVS and encourage the adoption of IVS across the globe.

Following a recent reorganisation, the IVSC has implemented a robust governance structure and is chaired by Sir David Tweedie, former chairman of the IASB. It has three core technical focus areas: the valuation of tangible assets, businesses and financial instruments.

After an extensive consultation process from April to October last year, in January 2017 the IVSC issued the latest version of its International Valuation Standards (IVS 2017).

Seeking input and counsel

Earlier this year, I was delighted to be appointed for a three-year period to the newly established Business Valuation Standards Board, a specialist subject matter board of the IVSC. There is also a Tangible Asset Board, and applications recently opened for a further specialist board focused on financial instruments. The main objective of these boards is to enhance the ‘in-house’ technical expertise of the IVSC.

Since the publication of IVS 2017, and following IVSC board meetings in New York earlier this year, IVSC has opened a new consultation on future revisions to the International Valuation Standards. IVSC would like to know:

  • What topics it should address as part of its current agenda, and
  • What additional topics should be priorities or added to IVSC’s agenda?

IVSC is currently proposing to prioritise non-financial liabilities, biological assets and extractive industries. The consultation runs for 90 days, ending on 15 August 2017. Please click here to read more about or contribute to the consultation.

If you have any questions or comments regarding IVSC and its activities, please feel free to get in touch.