International Valuation Standards Council (IVSC)
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International Valuation Standards Council (IVSC)
Its Role, Today’s Standards Setting Environment and Current Projects
Steve Sherman – Standards Board ChairTom Boyle, MAI – Standards Board memberJuly 25, 2013
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The views expressed at this conference and in any accompanying document are the personal views of the presenters and do not necessarily represent those of the IVSC Boards. Standards and Guidance are only issued by the Boards after following a process of public consultation and open deliberation.
Disclaimer
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IVSC OverviewInternational Valuation Standards OverviewCurrent Environment for Valuation StandardsCurrent Projects
Today’s Agenda
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International Valuation Standards Council
Overview
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IVSC Website
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• Develop high quality international standards and support their adoption and use;
• Facilitate collaboration and cooperation among its member bodies;
• Collaborate and cooperate with other international organisations;
• Serve as the international voice for the valuation profession.
The IVSC – Objectives
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The IVSC’s Authority Comes From:
• Consulting with valuation users and regulators to identify their concerns;
• Working with professional valuers to identify solutions; and
• Developing and promoting those solutions.
Enforcement of and compliance with IVS is by those adopting the standards, e.g. regulators, professional bodies, clients.
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The IVSC – Structure
Board of Trustees:Strategy, Governance
andFund-raising
Standards Board:Standards and Technical
Guidance
Professional Board:Development and Promotion of the Valuation Profession
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IVSC – Board of Trustees
Chairman – Sir David Tweedie 2001, elected first Chairman of International Accounting
Standards Board (served 10 yrs) In 2001, only a handful of countries used international
standards (IFRS) but by 2011 over 120 countries required or permitted their use
Former member of the Financial Stability Board Fellow of the Judge Business School at Cambridge
University Knighted in 1994 President of The Institute of Chartered Accountants of
Scotland for 2012-13. Chairs the Royal Household Audit Committee for the Sovereign Grant
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Board of Trustees (continued)
• Patrick Gounelle (France), Vice Chair• Nicolas Brooke (Hong Kong)• Roel Campos (U.S.A) • Brad Dalglish (Canada)• Lee Hackett (U.S.A.)• Madame Ping Lui (China)• Malcolm Knight (Canada/U.S.A.)• April Mackenzie (New Zealand)• Jens Roder (Denmark)• John Smith (U.S.A.)• Frank Vettese (Canada)• Akihiro Watanabe (Japan)
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Members – Valuation Professional Organizations
Australia, Belarus, Bosnia and
Herzegovina, Botswana Brazil, Bulgaria Canada, China,
Colombia, Croatia Egypt, Finland Georgia, Greece Hong Kong, India, Indonesia Ireland, Italy Japan
Kazakhstan, Kenya, Korea Latvia, Lithuania Malawi, Malaysia, Mexico Namibia, The Netherlands New Zealand, Norway, Nigeria Philippines, Poland Romania, Russia Serbia, Slovenia, South Africa Spain, Sweden Thailand Ukraine United Kingdom United States of America
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Valuation Professional Organizations Advisory Forum American Society of Appraisers Appraisal Institute Appraisal Institute of Canada Asociación Profesional de Sociadades de Valoración
(ATASA) Australian Property Institute Canadian Institute of Chartered Business Valuators Hong Kong Institute of Surveyors Royal Institute of Chartered Surveyors The Appraisal Foundation
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International Valuation Standards
Overview
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Appraisal Institute: Preamble to Code of Professional Ethics (effective July 1, 2006)
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Objectives of the International Valuation Standards
PROTECT THE PUBLIC INTEREST (i.e., investors, taxpayers)
Promote consistency of approaches
Position valuers to perform high quality work
Develop common terminology
Establish a framework for delivering valuations
Provide transparency
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History
IVSC published first definitions and standards in early 1990s
In 2000 first comprehensive book of standards published – four subsequent editions to 2007
By 2007 had grown to book of over 450 pages but the detail was presenting obstacles to wider adoption
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Guiding principles for rewrite:
Make general principles “asset neutral” Identify principles that could be applied globally Exclude terms and practices only found in certain
market or countries Distinguish rules from discussion and guidance Keep language simple Avoid jargon and unnecessary definitions Avoid repetition
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IVS Improvements Project
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IVS Revision Process Market factors beginning in
2008 were catalysts for this project
52 comment letters received and reviewed
Three global roundtables held in 2010 (NY, Hong Kong, London)
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IVSBoard Approved in March 2011
Published July 2011
Effective January 1, 2012
May be purchased from IVSC online, (£40)
IVSonline: www.ivsc.org/products
Technical Information Papers (TIPs) available separately
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IVSonline – subscription service
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IVS Definitions
IVS Framework
11 Standards (standards & guidance):
3 General Standards
6 Asset Standards
2 Application Standards
Technical Information Papers (TIPS):
DCF
Cost Approach for Tangible Assets
Valuation of Intangible Assets
IVS Structure
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Accessible from the AI Website
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The IVSC’s Standard Setting Process
• Needs are identified through research and public consultation
• Proposed standards are debated at open board meetings
• Comments are solicited through a public exposure process
• New and revised standards are periodically published and posted on the IVSC’s website
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IVSC Standards Board
Steve Sherman, (U.S.A.) Chair. BV Frank Bollman, (Germany) Vice Chair. BV Thomas Boyle (U.S.A.), Real Property Ana Castaneda (Spain), Financial Instruments Jim Eales (United Kingdom), BV Paul Hawkes (Switzerland) Financial Instruments Simon Landy (Thailand), Real Property Dr. Cindy Ma (U.S.A.), Financial Instruments Chris Stanley (New Zealand), Real Property
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Current Environment for Valuation Standards
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• G20 – in 2009 recognised valuation as being a contributory factor to the financial crisis…
• …but asked accountants (IASB) to fix it!
• Scepticism around fair value measurements under IFRS
• SEC comments 2005 and 2011
What Do Others Think?
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“The broadening application of fair value …and the 2008 financial crisis have cast the spotlight on valuation professionals. At last count, valuation professionals in the US can choose among five business valuation credentials available from four different organizations, each with its own set of criteria for attainment…... Risks created by the differences in valuation credentials that exist today range from the seemingly innocuous concerns of market confusion ….to the more overt concerns of objectivity of the valuator and analytical inconsistency.”
Comments from the SEC(from Dec 2011)
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“One potential solution to consider is whether there should be, similar to other professions, a single set of qualifications with respect to education level and work experience, a continuing education curriculum, standards of practice and ethics, and a code of conduct. One could also contemplate whether a comprehensive inspection program and a fair disciplinary mechanism should be established to encourage proper behavior and enforce the rules of the profession in the public interest.” est.”
Comments from the SEC (continued)
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Restatements of US Public Companies
Over 50% of restatements in
certain years may have involved
FV measurements Nearly one-third of Goodwill
written off in 2008/09 (over
$700B)
Regulatory reviews: greater
focus on audit evidence
supporting FV measurements
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PCAOB 2009/10 Inspection Reports:Fair Value Deficiencies
Inspections of the Big 4 in 2009 resulted in 37 audits containing a “deficiency”
Of these, 26 (70%) involved fair value measurements
54/77 in 2010 = 70%
Foreign regulators increasingly in contact with the PCAOB
Breakdown of Deficiencies by Topic Area in 2009:
Financial Instruments 11
Goodwill and Intangible Asset Impairment 8
Long-Lived Asset Impairment Analysis 3
Inventory Valuation 2
Other 2
Total 26
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Good relationships with other private sector standard setters in financial markets, eg:IASB, FASBIFACIPEV
One of nine bodies invited to give joint recommendations to G20 on how private sector can contribute to better financial regulation.
Interaction with financial regulators, eg: FSB, IOSCOSEC, PCAOB,
IVSC Speaking for Global Profession
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Adopted as national standards in many countries (e.g. Australia, New Zealand, Romania, South Africa, Turkey)
Some countries have adopted as national standards with amendments to meet requirements of national legislation.
Professional organisations adopting IVS: AI RICS ASA (non-US reports)
On going IVS Adoption efforts.
Adoption of the IVSs
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IVS – Current Projects
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In June 2013, the Standards Board approved minor amendments to the 2011 Standards:
Clarifying applicability to valuation reviewsClarifying valuers’ duty to investigate and when information provided by others may be relied uponMore explicit encouragement of using multiple methods to cross checkAmendments approved by Board in June 2013New standards will be effective from 1 January 2014
Updating and Clarification of Standards
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Equity Derivatives – Exposure Draft published July 2013 Credit and Debit Valuation adjustments – Exposure Draft
expected fall 2013. Valuation Uncertainty – Comments received on Exposure
Draft; TIP in development. Commercial Forestry – Further research due to diversity
revealed by responses to Exposure Draft. Extractive Industries: Comments on 2012 Discussion
Paper being analysed. Trade Related Property: Exposure Draft received few
comments. Issue being evaluated.
IVSC Technical Projects
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Investment Property: Discussion Paper published November 2012 – comments being analysed
Liabilities: Comments on 2012 Discussion Paper being analysed
Specialised Public Service Assets: Review comment letters on the proposed TIP.
IVSC Technical Projects - Continued
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Audit Guidance for Valuers: Revising following comments on 2012 Exposure Draft.
Professional Valuer Competencies: Expanding the basic Competency Framework published in 2012.
Regulatory Convergence: Paper aimed at promoting role that better valuation standards can play in improving the global regulation of the financial sector. s.
Illustrative Examples Exposure Draft due Q3 2013
IVSC Professional Development Projects
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Thank you for your attention!
Questions?
International Valuation Standards Council
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