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

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)

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

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

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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