New guidance shortly to be issued by the International Valuation Standards Council (IVSC) should help improve the quality of information in audited accounts on the value of intangible assets such as brands, intellectual property and customer relationships.
In a recent study, Accounting for Acquisitions, the Financial Reporting Council (FRC) concluded that there “is a need for improved compliance with the disclosure requirements of IFRS,” with particular criticism of the treatment of goodwill and intangibles.
Under International Financial Reporting Standards following a merger or acquisition the price paid has to be allocated to the tangible and intangible assets based on fair values. The FRC study examined twenty acquisitions that had been completed in 2008. It assessed the quality of the information provided in the business review and the disclosures about individual intangible assets and goodwill recorded in the audited accounts. The study found that the standards had been poorly applied due to unfamiliarity with the accounting requirements and the complexity of valuing intangible assets.
The FRC hopes that the study will be ‘a catalyst for Boards of directors, audit committees, accounting teams and auditors to consider the accounting for acquisitions more carefully.’ The FRC also notes that other market developments should assist the application of the requirements in future, including an increase in the knowledge, skills and experience of practitioners in valuing intangible assets, and the additional guidance on measuring fair value to be published by the IASB and IVSC during 2010.
Chris Thorne, chairman of the International Valuation Standards Board confirms, “The IVSC will shortly be publishing a revised Guidance Note on the valuation of intangible assets that identifies and defines the principal approaches and methods used in intangible asset valuation. The objective reduces to promote understanding of the primary recognised techniques and to promote consistent terminology in order to promote good practice and make valuations of intangibles more comprehensible to investors around the world.”
The IVSC also intends to introduce additional guidance on valuing intangibles under IFRS later in the year after the the IASB has concluded its current project on Fair Value Measurement.
Chris Thorne also added, “The issues identified by the FRC in the UK apply in many other countries of the world that have adopted IFRS. In the light of similar concerns in the USA, the IVSC is also collaborating with the Appraisal Foundation on the development of best practice guidance on specific areas where there is currently an absence of recognised authoritative guidance, including the valuation of customer relationships and the identification and valuation of control premiums.
For further information on the IVSC please contact:
Marianne Tissier, IVSC
Tel: +44 (0)1442 879 306
NOTES TO EDITORS
About the IVSC
The International Valuation Standards Council (IVSC) is charged with developing robust and transparent procedures for performing international valuations through a single set of globally recognized valuation standards, acceptable to the world’s capital markets organisations and regulators, and meeting the challenges of a fast-changing global economy. The governance structure of the IVSC, a non-profit organisation incorporated in the US, now includes two independent technical Boards – the International Valuation Standards Board and the International Valuation Professional Board – with oversight by a globally representative Board of Trustees responsible for the strategic direction and funding The IVSC works co-operatively with national professional valuation institutes, users and preparers of valuations, governments, regulators and academic bodies, all of whom can become members of the IVSC and have an important role to play in advising the Boards on agenda decisions and priorities in the work of the IVSC.
— For more information please visit: www.ivsc.org
The Financial Reporting Council
The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on Corporate Governance.