International Valuation Standards: An Overview

Prabhat Nigam

05 May, 2022

The importance of valuation standards cannot be belittled because of the significant role they play in regulating the professional valuation practice of the professionals at the regional, national and global level. The International Valuations Standards help in promoting trust, impartiality, professional ethics and integrity in the valuation activities. Many organisations and nations have responded to the international pressure in regulating the valuation profession by reviewing the regulatory environment, compliance with standards and valuer training. The IVSC has established itself as the global body to produce IVSs.

What are International Valuation Standards (IVSs)?

A number of stakeholders use valuations for several purposes such as in the financial and capital markets, for inclusion and exclusion in financial statements, for regulatory compliances or help in secured lending transactional uses. In order to maintain parity and understanding regarding the best valuation practices to be adopted and understood by all the stakeholders in the same sense, the International Valuation of Standards (IVSs) are the standards that consist of various actions required to be undertaken while undertaking a valuation assignment supported by technical information and guidance.

What is International Valuation Standards Council (IVSC)?

International Valuation Standards Council^[1] (IVSC) is the International body which has been established to set standards for valuation. It is the responsibility of IVSC to set standards on undertaking of valuations and reporting thereof, especially those that will be relied upon by the investors and other third party stakeholders. IVSC also undertakes to develop a framework of guidance delineating the best practices to be followed while valuing different classes of assets and liabilities and also for the consistent delivery of standards through properly trained and equipped professionals across the globe.

IVSC is a non-governmental organisation with over 141 countries as its members and sponsors. Over a period of time, the asset classes in IVS have expanded a lot. This requires additional standards for a number of asset classes of interest to India such standing crops, livestock, plantations, antiques, mines, precious stones, quarries and minerals.   

Objective of International Valuation Standards  

The objective of International Valuation Standards (IVSs) is to cement the trust and confidence of the users in valuations services by establishing a transparent valuation framework along with consistent valuation procedures.

What do the International Valuation Standards contain?

The IVSs contain five different types of pronouncements. These are as follows:

1. IVS Framework

IVS framework provides the concepts and principles that need to be followed while applying the IVFs. However, it does not include any required actions.

• IVS General Standards

IVS General Standards contain the actions that are required at the time of setting up, carrying out and reporting a valuation.

• IVS Asset Standards

IVS Asset Standards contain the additional requirements for each of main genres of asset. It also contains guidance on important issues which affects valuation of a particular type of asset that needs to be considered.

• IVS Application Standards

IVS Application Standards contain some additional requirements for specified valuation purpose and guidance on the matters that may be typically encountered.

• Technical Information Papers

Technical Information Papers contain the guidance on complying with specific requirements in different standards or while dealing with matters where there is evidence of diverse practice.

Adoption of IVSs by different countries

A number of countries across the world have adopted IVSs and incorporated them in their national systems of valuation. These countries include the states of Romania, Turkey, South Africa, some emirates of UAE, Bahrain. Certain other countries have adopted IVSs as part of their national standards and for that they have made amendments in their national laws. Such countries are both Australia and New Zealand. An initiative has been taken by the professional organisations of the countries where they have adopted part or all IVSs for their members in many countries such as China and Hong Kong. 

IVSs have found their place in the IFRS Model Financial Statements released by two of the four Big Four Accounting Firms namely Deloitte and EY. Even the European Banking Authority (EBA) made references of IVSs in its new valuation handbook for central banks and other prudential regulators in Europe.

Private Organisations have also confirmed to the IVSs signalling their commitment to international standards related to professional valuations by becoming a member of IVSC.       

Challenges to Implementation of International Valuation Standards 

Despite the existence of IVSs, considerable variation in the local laws related to valuation can be observed in many countries regulatory framework. Things become even more complicated when different bases of value and methodologies are adopted to do valuation across the world leaving no scope of symmetry in valuation methodology.

Different national regulations have different notions related to the concepts of market value, divergent valuation approaches and coupled with a lack of qualified valuers act as major challenges across both mature and emerging markets.

Conclusion 

The primary reason for introducing IVSs was to bring in consistency and uniformity in the valuation standards. Since, different assumptions lead to drastic changes in the value conclusion, the objective of uniformity seems to have been lost. These IVSs provide a benchmark to the professionals to ensure uniformity and consistency in the valuation output. The need of the hour is to have uniform, consistent and transparent valuation policies and harmonise the same with the diverse set of valuation practices followed across the world. This, however, requires extensive collaboration and willingness to compromise from both the ends to make it happen.

Read Our Article: What is Business Valuation?