The International Valuation Standards

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THE INTERNATIONAL VALUATION STANDARDS

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THE INTERNATIONAL VALUATION STANDARDS (IVS)

History
The IVSC produced its first standards in the 1980s. A major landmark was obtaining agreement to the definition and conceptual framework for market value in the early 1990s. In 2000 the first set of comprehensive standards covering assets ranging from real property, businesses, intangibles and machinery and equipment was produced and these were regularly updated and extended. Over the last decade, the International Valuation Standards (IVS) have been adopted or recognised by many valuation institutes, user groups or financial regulators around the world.

In 2006 the IVSC recognised that because the IVS had been developed gradually over a long period there was a need for a thorough review to improve their focus, relevance and consistency. It appointed an independent Critical Review Group to consider how the existing standards could be improved. The group produced a report with its recommendations in 2007 upon which public comments were invited.
— GET 2007 Critical Review Report (pdf)

The market turmoil of 2007 and 2008 also served to emphasise the need for the standards be more accessible and relevant to a much wider sector of the market than previously. A major new concern emerged with regard to the valuation of financial instruments. A lack of understanding not only of the risk profile of new or complex instruments but also of the valuation processes used for providing information to management, investors and prudential regulators was identified as a significant contributor to the problems that beset the financial markets.

Following the restructuring of IVSC in late 2008 the newly appointed Standards Board confirmed a project to improve the IVS based on the recommendations of the Critical Review Group.

Improvement Project
The Standards Board considered that in implementing the Critical Review Group’s recommendations there was a need to considerably simplify the standards to improve their accessibility. It also decided that:

• There was a need for the standards to address the valuation of financial instruments;
• That the standards should not be presented as a rule book for valuers but a set of principles for good valuation practice that would be equally accessible and useful to valuation users and others interested in valuation.

In June 2010 an Exposure Draft of the proposed new Standards was published with a comment period of three months:
— GET Exposure Draft (pdf)
— GET Overview and Questions for respondents (pdf)
— SEE Comment Letters (note comment period closed 3 September 2010)

Following an initial review of the comment letters the Standards Board confirmed that it would undertake further consultation by arranging Round Table discussions during November 2011 with invited participants to discuss some of the main issues raised by the comment letters. These meetings were held in Hong Kong, London and New York.
— GET summary report of the Round Table discussions (pdf)

After further review of the comment letters and of the Round Table discussions, the Standards Board tentatively agreed the following major changes to the Exposure Draft:

1. To create an IVS Framework containing much of the material in IVS 100 - 103 in the Exposure Draft. The Board accepted that that much of this material was in the nature of a discussion about valuation concepts and principles. Although this material is important for the proper understanding and application of the IVS, it needs to be clearly separated from those standards that provide a clear direction as to what should be done in the course of a valuation assignment.
2. To create a new “General Standard” dealing with the implementation phase of a valuation assignment. This would take the material that is more suited to a mandatory standard from the original IVS2 and IVS3 in the Exposure Draft, and fill a gap that some perceived existed between the Scope of Work and Reporting standards. This would be an alternative presentation of material proposed in the Exposure Draft intended to improve the logic and flow of the standards. As it would contain no requirements that were not proposed in the Exposure Draft, further exposure was not considered necessary.
3. To reorganise the Asset Standards (the 300 series in the Exposure Draft) so that the requirements of each standard are more clearly distinguished from the background discussion. This is likely to be done by putting the “standard” first and following this with the discussion of the nature of the assets in the sector, identification of valuation approaches commonly used and matters that are material when considering their value. In most cases the standard is brief, containing only specific requirements for the application of the principles contained in the general standards to that asset class.
4. The 201 series on Financial Reporting appearing in the Exposure Draft will be restructured and presented differently. The majority of the text will be retained but clearly presented as guidance on various valuation requirements under IFRS, and will make it clear that IFRS, or such other accounting standard that may be relevant, are the standards that must be followed.

A “Staff Draft” of the proposed new standards reflecting the above changes and other comments made on the Exposure Draft was published on the IVSC website in February 2011.
— GET Staff Draft (126 pages; 1Mb pdf)

At its meeting in March 2011 the Standards Board considered a series of amendments to the Staff Draft that had been proposed by members of the Board and others.

Subject to the changes agreed during this meeting, the Board unanimously approved all of the standards included in the Staff Draft except for IVS 232, Trade Related Property. The Board considered that further consultation is required on the interaction between this proposed standard and IVS 200 Businesses and Business Interests and IVS 230 Real Property Interests. Since elements of each of these standards appear in the draft Trade Related Property Standard the Board wishes to consider further whether a separate standard is necessary.

The Board agreed that the approved standards would be effective from 1 January 2012, with earlier adoption encouraged.
The approved standards were published on 19 July. A book containing all the approved standards is available at a price of GBP 40, with discounts available for bulk orders. It is intended that an electronic subscription service for access to the IVS and other IVSC publications will be introduced in 2012.
— ORDER IVS 2011 (cost: £40, plus shipping)
— POLICY for reproducing, or translating and reproducing, publications issued by the IVSC (pdf)

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