Asset Valuation Services, Assets Valuation

URL: IVSC

International Valuation Standards (IVS) serves as a key guide for valuation professionals internationally and will underpin transparency, consistency, and confidence in valuations that are crucial to financial reporting, investment decisions, and financial market stability.

The standards are drafted by the International Valuation Standards Council (IVSC), a non-profit organisation that serves as the global standard setter for valuation professionals and the welfare of the general public.

With the goal to develop high quality international standards and support their use and adoption, IVSC has updated the IVS to heighten standards of international valuation practice as a fundamental component of the financial system. It has since updated its latest version of the Standards (IVS) that was published in January 2017.

Read on below for a summarised version of the recent IVSC webinar addressing the latest updates to IVS.

International Valuation Standards Consultation Process

IVSC has developed into an open, transparent and collaborative consultation process. There are various consultations that have led to the development of the IVS, as stated below:

  • IVS 230 Inventory Exposure Draft – consultation from 28 February 2020 until 30 June 2002.
  • IVS Agenda Consultation – consultation from 16 Oct 2020 until 15 January 2021
  • IVS Proposed Agenda and Summary of responses published April 2021
  • IVS Additional Technical Revisions – consultations from 29 January until 30 April 2021
  • IVS (wef: 31/01/2022) published in black line and red line on 30 July 2021
  • IVS (wef: 31/01/2022) Basis of Conclusion including IVS 230 Inventories due to be published on 27th August 2021

International Valuation Standards

A brief overview of the IVS is reflected below.

  • All IVS mandatory
  • 135 pages long
  • Comprises general standards (IVS 101-105, apply to all disciplines) and asset standards (business valuation, tangible assets, and financial instruments)
  • Effective date: 31st Jan 2020.
  • Early adoption is permitted from the date of publication, 31st of July 2021
  • Available to access via IVS online: ivsonline.org
  • IVSC Members and Sponsor organisations have free access

Key changes

  • Includes core valuation standard settings and valuation principles for all VPO’s and stakeholders
  • Additional definitions
  • New section on Allocation of Value (IVS 104)
  • Revised scope for Business and Business interests (IVS 200)
  • New chapter on Inventories (IVS 200)
  • Revised Scope for IVS 400n Real Property Interests

IVS Introduction

Core Principles of Valuation Standard Setting

  • Purpose (Objective)
  • Valuation Standards
  • Development and Revisions of Standards
  • Jurisdiction

Core Principles of Valuation

  • Ethics
  • Competency
  • Compliance
  • Basis (i.e. Type or Standard) of Value
  • Date of Value (i.e. Effective Date/Date of Valuation)
  • Assumptions and Conditions
  • Intended Use
  • Intended User(s)
  • Scope of Work
  • Identification of Subject of Valuation
  • Data
  • Valuation Methodology
  • Communication of Valuation
  • Record Keeping

IVS Glossary

New Definitions:

Basis (bases) of Value Cost(s) (noun) Discount Rate(s) Equitable Value
Fair Market Value Fair Value (IFRS) Investment Value Liquidation Value
Market Value Price (noun) Synergistic Value Valuation
Valuation Approach Valuation Method Value (noun) Valuer

IVS 104 – new section added: Allocation of Value

Allocation of value is the separate apportionment of the value of an asset(s) on an individual or component basis.

When apportioning value, the allocation method must be consistent with the overall valuation premise/basis, and the valuer must:

  • Follow any applicable legal or regulatory requirements,
  • Set out a clear and accurate description of the purpose and intended use of the allocation,
  • Consider the facts and circumstances, such as the relevant characteristic(s) of the item(s) being apportioned,
  • Adopt appropriate methodology(ies) in the circumstance.

IVS 200

As part of the feedback received from the IVS 2017 Proposed Technical Revisions Exposure Draft consultation process and further to discussions amongst the Business Valuation Board (BVB) and other stakeholders who were unclear as to what constituted a business or business interest, the BVB have revised the Introduction to IVS 200 to provide additional clarification on the scope.

Changes are not made to the IVS scope, but only further clarifications are made. Only updates are made for the scope for the beginning of the section.

The purpose of IVS 200 is to draw the line between tangible asset valuation and what’s in the scope of one side of the spectrum and also look forward to what’s happening at the financial instrument board.

New chapter: IVS 230 Inventories

Over the last year, the business valuation board worked to go through the exposure draft process and ultimately the final standard IVS 230.

Scope

The most common context for the valuation of inventory is financial reporting related to a business combination. In this context, the definition of inventory includes raw materials, work-in-process (WIP), and finished goods. Although SFAS 141 has been suspended, in many ways, the current practice remains constant with its guidance.

Specifically, two primary methods may be used to determine the value of inventory: the Replacement Cost Method (the “Bottom-Up Method”) and the Comparative Sales Method (the “Top-Down Method”).

Meanwhile, there are two things that IVSC wants to emphasise with IVS 230 is:

Where value creation takes place

It happens within the value chain of manufacturing, marketing, selling and distribution. Although this concept is very specific in this standard to the valuation of inventory, they’re concepts that are starting to come up in other areas as well when you think about internally generated intangibles and just trying to identify where the actual value add is within the value creation process of an enterprise.

Try not to make things very prescriptive

While inventory is a little difficult due to the many tried-and-true methods, IVSC still wants to keep it principle-based, so people can still apply judgement.

IVS 400 Real Property Interests

It’s a very good example of IVS working with member organisations and other standard setters to meet market needs. Currently, there are also newly included standards for unregistered lands within IVS 400 Real Property Interests.

20.1 Property interests are normally defined by state or the law of individual jurisdictions and are often regulated by national or local legislation. In some instances, legitimate individual, community/communal and/or collective rights over land and buildings are held in an informal, traditional, and undocumented, and unregistered manner. Before taking up a real property interest’s valuation, a valuer must understand the relevant legal framework that impacts the interest which is valued.

20.2 A real property interest is a right of ownership, control, use or occupation of land and buildings. A real property interest consists of informal tenure rights for community/communal and or collective or tribal land and urban/rural informal settlements or transition economies, which can take the form of possession, occupation and rights to use.

IVSC Perspective Papers

There are many references for valuation professionals to look at the market and its issues, needs, and future standards. These perspective papers can be downloaded here: https://www.ivsc.org/news/list/category/perspectives-papers

Asset Valuation Services, Assets Valuation

URL: IVSC

Audience Questions: Asked & Answered

1. Will ESG be included in the next version of the IVS?

From our perspective, ESG is already, to a certain extent, included in IVS; it is explicitly general and asset standard. However, as with other standard setters, a leading effort to integrate ESG in the financial profession. It will result in valuers having more to mount in relation to quantifying ESG within their valuation. So, both the business valuation board and the tangible asset and financial instrument board are looking at ESG and have it be quantified within the valuation process, and we expect future standards on this to be forthcoming over the next year.

2. Please take a moment to talk about ethics and how IVS help us over this issue.

In terms of ethics, IVSC does publish the code of ethical principles for professional valuers. Also, ethics is very much part of what we do; it is one of the core valuation principles contained within the addition to IVSC, and also the IVSC are the members of the International Ethics Standard Coalition, so we would be very integral in what we tend to do.

3. In case IVS is in conflict with local standards, how to resolve conflict?

In the case of concept led with local standard, IVS is very clear in relation to its departure section that you may need to part from the standard to follow legal, administrative, or regulatory requirements. But that doesn’t mean you’re not compliant with IVS, provided that you’ve followed the rest of the standards.

4. What prompted the updates?

The update to a process of continual standard settings. We get feedback from our advisory forum working group, which is made up of members from our organisation, also from other stakeholders and the market, and we advise the standard to meet market needs where we understand these issues in relation to the standard.

5. What steps are necessary to take for a USPAP appraisal to also be considered IVS compliant?

In terms of USPAP and IVS compliance, there is a bridging document that has been published and available on both the IVS site and the appraisal foundation site, a bridge from USPAP to IVS. And it makes the point that IVS and USPAP compliant valuation stroke appraisal should give the same answer is just that we do certain bits at different stages within the valuation process.

6. How closely do the IVS resemble the ASA?

IVS isn’t overarching principle-based standards, and therefore it will integrate with ASA and other standards from our member organisation so they may provide a higher level of detail.

7. Can we get a slide deck on what has changed with respect to earlier standard (or a red line version of updated standard)

In terms of the red line version, it is already available on the IVSC website, and it is encouraged for one to view that for the actual changes of IVS and other standards.

8. Are these updates applicable to IVSC Valuation Standards Under Philippines Setting?

Looking at the question in relation to IVS standards in the Philippines, the Philippines department of finance is an institutional member of the IVSC, and the IVSC being affected and adopted in the Philippines since 2009 through the Philippines valuation standard, they’re one of many institutional members that have adopted IVS the IVSC will work in the department of finance in the Philippines to outline the changes and ensure the updates are reflected in future editions of the standards.

As a whole, these are the key points that were addressed regarding the latest updates to IVS. You can watch the entire webinar for a more detailed overview here: https://vimeo.com/592340726. Or alternatively, you can find out more with https://www.ivsc.org/.

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