Investigations by the International Valuation Standards Council (IVSC) have established a lack of guidance relating to the valuation of liabilities. Accordingly, the IVSC has launched a new project to determine appropriate valuation practice and provide standards.
Miscalculating the value of an organisation’s liabilities can be just as detrimental as incorrect asset values yet most valuation standards and theory only focus on the latter.
Frank Bollmann, Vice Chairman of the IVSC’s International Valuation Standards Board, and leader of the project, explains:
“People often think that calculating the value of a liability is the same as calculating the value of an asset – just with plus and minus reversed. Clearly the reality is often a lot more complicated, especially when liabilities will not fall due until a date in the future.”
Recognising that the valuation of liabilities involves some unique challenges, the International Valuation Standards Board has published a Discussion Paper setting out some of the issues that it has identified and seeking views on the possible approaches to overcome these.
Frank Bollmann, continues:
“It is clear that this is a complex subject and one that is not well understood, even by some experienced valuation experts. Therefore, we are keen to identify a consensus on how the value of different types of liability can be best determined and reported.”
Sir David Tweedie, Chairman of the IVSC Trustees, comments:
“The proper valuation of liabilities is an important aspect of financial reporting and is vital in order to improve investors’ confidence that proper account has been taken of matters that could negatively impact on a company’s future results.”
The Discussion Paper can be downloaded from the IVSC website. Comments are invited before 30 April and can be sent to [email protected].