The Professional Board of the International Valuation Standards Council (IVSC) has today released an Exposure Draft of a proposed update to its guidance on the depreciated replacement cost method of valuation.
The depreciated replacement cost method of valuation is often used for specialised assets which are rarely sold separately, with the result that there is little or no comparable sales information available. The proposed Technical Information Paper addresses a number of common misunderstandings about the method, and illustrates how it can be applied to provide a realistic valuation in the absence of transactional evidence.
The updated guidance will provide clarification of the principles that need to be considered with respect to the method, following a number of examples of divergent practice around the world being brought to the IVSC Professional Board’s attention.
Jean-Florent Rerolle, Chairman of the IVSC's Professional Board explains:
“It is apparent that there are inconsistent practices in the application of the depreciated replacement cost method. This new Technical Information Paper will address these issues.”
The project is being led by a member of the IVSC’s Professional Board, Roy Farthing, who is a partner with Ernst & Young based in Melbourne. According to Farthing, there is widespread demand for guidance:
“The increasing requirement for all assets to be stated at their current value in the accounts of companies and public bodies means that the techniques for valuing specialised assets are coming under ever greater scrutiny. Hopefully this Technical Information Paper will help practitioners around the world adopt best practice.”
The Exposure Draft can be accessed on the IVSC’s website at www.ivsc.org. Comments are invited before 31 May 2011.
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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, market participants and regulators, which will meet the challenges of a fast-changing global economy.
The governance structure of the IVSC, a non-profit organisation incorporated in the US, includes two independent technical Boards - the International Valuation Standards Board and the International Valuation Professional Board - and a global Board of Trustees responsible for the overall strategic direction and funding of the IVSC. 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