International Valuation Standards

The International Valuation Standards (IVS) represent a set of standards used in determining the value of assets recognized globally. The International Valuation Standards Council (IVSC), which is a not-for-profit institution, acts as a developer, maintainer and setter of standards of IVS for the valuation profession globally. 

Valuation professionals follow the standards and framework provided by IVS. They comprise different aspects of the process of valuation like bases of value, methods and approaches of valuation, reporting and formulating the terms and conditions of a valuation engagement. It also consists of needs pertaining to particular categories of assets like financial instruments, businesses, plant and equipment, real property, and intangible assets. 

It has various implications, including high-quality and consistent valuations, minimizing valuation problems, and assisting individuals and firms with inaccurate asset valuations under their possession. While widely utilized by valuation professionals around the world, IVS is not the only set of standards in use, as some regions and industries may follow other specific guidelines. Furthermore, the international nature of many U.S.-based companies' investments and transactions, IVS has become increasingly relevant for those engaged in global business.

It has its uses in a variety of purposes like lending, financial reporting, and mergers & acquisitions. IVS has significantly impacted the financial world by promoting accurate and consistent valuation practices across various sectors. It also makes it possible to prepare accurate financial reporting, as wrong or error-prone valuations may lead to deceptive financial statements and basic decision-making. It has also been playing an active role in the regulation of the financial sector.

It has a history that goes back to the 1980s, as listed below:

• First of all, International Valuation Standards (IVS) was established in Melbourne in1981to homogenize the valuation practices globally by the International Valuation Standards Council. 
• In 1985, IVSC entered the United Nations, a Non-Governmental Organization status, to collaborate with the World Bank and IMF.
• In 2001, IVS became globally recognized, leading to the growth of international interest, making it as gold standard in the field of valuation. 
• IVSC was reorganized & invited by FASB Valuation Resource Group to join it as per international valuation standards in 2007
• In 2014, IVSC solidified its influence after it signed a combined statement of protocols with that of the International Accounting Standards Board.
• In 2017, the Pan-American Union of Valuers and the ASEAN Valuers Association adopted IVS, depicting its increasing global acceptance.
• In January 2022, it released its most recent updates reflecting consistent efforts regarding upkeeping the relevancy and wide applicability of valuations' standards.

It has its mission to increase tie credibility and quality of valuation practices globally. To do so, they have to below objectives:

• To create robust IVS, ensuring the valuations incorporate comparability, consistency and transparency in its execution.
• To promote IVS adoption globally and teach and support professional valuation with the help of Valuation Professional Organizations (VPOs) throughout the world.

IVS is crucial across various sectors due to the following reasons:

• Builds trust and credibility among stakeholders and investors.
• Offers a common framework for ensuring comparability of valuations across different asset classes and markets.
• Reduces the risk of lawsuits by supporting regulatory compliance.
• Increases the reliability and credibility of valuations, which are vital for decision-making and financial reporting.
• Promotes professionalism in valuation by setting competency and ethical standards for IVS practitioners.

Its membership can be taken by qualifying entities like valuation service providers and Valuation Professional Organizations (VPOs). It has members from diverse geographical locations to add value and knowledge to its processes. It has 170 member institutions spread across 130 countries globally, including almost 70 VPOs. 

Let us use a few examples to understand the topic.

Example #1

An article published on September 14, 2023, discusses the global importance of reliable and accurate valuations in the real estate sector, emphasizing the crucial role of the International Valuation Standards (IVS). The International Valuation Standards Council (IVSC) established IVS to ensure credibility, uniformity, and transparency in real estate valuations worldwide.

This has led to several benefits, including:

• Enhanced transparency in valuation reports
• Promotion of uniformity across global markets
• Increased confidence among real estate investors
• Facilitation of global investment opportunities
• Mitigation of risks associated with inaccurate valuations

Thus, IVS has become essential for real estate transactions, tax assessments, investment decisions, financial reporting, and mergers, contributing to a more informed and stable real estate market.

Example #2

Imagine the International Bonds Corporation (IBC) in Old York City issues bonds worth $100 million. To ensure the credibility and accuracy of their bond valuation, they hire a valuation firm called International Valuer Firm (IVF). IVF assigns Jonny, an expert valuer, to conduct the valuation in strict adherence to IVS guidelines.

Jonny considers factors such as IBC’s financial condition, the bond’s 8-year maturity period, and prevailing market interest rates. By incorporating these elements and following IVS, Jonny ensures a transparent and consistent bond valuation, making it credible and reliable for investors in South Korea and New York. After completing the valuation, Jonny presents a report with high transparency, thereby boosting investor confidence.

IVS is crucial across various sectors due to the following reasons:

• Builds trust and credibility among stakeholders and investors.
• Offers a common framework for ensuring comparability of valuations across different asset classes and markets.
• Reduces the risk of lawsuits by supporting regulatory compliance.
• Increases the reliability and credibility of valuations, which are vital for decision-making and financial reporting.
• Promotes professionalism in valuation by setting competency and ethical standards for IVS practitioners.