The need for accurate valuations can never be overlooked as they have an impact on critical
decisions making on real estate disposal, acquisition, lending, accounting and many more other
reasons. While so important, the valuation problems also surface and these include valuation
inaccuracies, client influence, valuer conduct, obscure market fundamentals, etc. These
challenges are not just local but experienced globally. With globalisation, investments are
increasingly disregarding boarders and capital is floating targeting the best markets. How does
one then assess and compare the respective property markets, the need for accurate valuations
comes to play. This requires an international standardised system to determine the value of
properties across the nations or regions. This caused the formation of the International Valuation
Standards Committee in 1981, as explained by Elvin Femandez in October 2003 at a conference
in Kuala Lumpur, Malaysia. He was the chairperson of the Committee by then. Femandez
explained the relationship between International Financial Reporting Standards and
International Valuation Standards (IVS). He postulated that the scope of the Committee includes
four broad areas, namely (a) real property, (b) personal property, (c) businesses, and (d) financial
interests. In that regard, this article analyses the Valuation Standards in property valuation and
International Financial Reporting Standards (IFRS 13) on Fair Value Measurement of Property.
International Financial Reporting Standard (IFRS 13)
IFRS 13 explains the valuation of property to record in the financial records and report in the
Statement of Financial Position. In May 2011, the International Accounting Standards Board
issued IFRS 13, Fair Value Measurement. IFRS 13 defines fair value and replaces the requirement
contained in individual Standards. IFRS 13 views fair value as the approximate value of the
property according to set standards for determining the value of a property. IFRS 13 defines fair
value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price). When
measuring fair value, companies use the assumptions that market contributors would use when
pricing the asset or the liability under current market conditions, including assumptions about
risk. As a result, the companies’ intention to hold an asset or to settle or otherwise fulfill a liability
is not relevant when measuring fair value. It further set out the framework for determining fair
value and the procedure for its disclosure in the books of accounts.
International Valuation Standards (IVS)
The article considers a selected number of general standards and assets standards of
International Valuation Standards. General standards amended and effective on 31 January 2020,
according to International Valuation Council, include IVS 101 Scope of work, IVS 102
Investigations, and Compliance, IVS 103 Reporting, IVS 104 Bases of Value, and IVS 105. In
addition, International Valuation Council amended assets standards, namely, IVS 200 business
and business interests, IVS 210 Intangible Assets, IVS 220 Non-Financial Liabilities, IVS 300 Plant
and Equipment, IVS 400 Real Property Interests, IVS 410 Development Property, and IVS 500
Financial Instruments.
General Standards Amended
The International Valuation Council Report (2020) describes the contents of IVS 101, Scope of
work. Scope of work refers to the description of the valuation to be done. It specifies the property
to be evaluated and the reason for the evaluation. IVS 101 describes the responsibilities of the
parties involved in the valuation process, including that of the person carrying out the valuation.
In addition, IVS 102, Investigations and Compliance was amended and its implementation began
on 31 January 2020. The standard stipulates that investigations are based on the type of asset,
purpose, and nature of valuation. The valuer must gather sufficient evidence supporting
valuation before carrying out the task. The valuer must take steps to ensure the reliability and
validity of the data gathered through third parties. It becomes the responsibility of the valuer to
keep that gathered data for future reference. All investigations must be within the confines of
the country’s laws.
Similarly, IVS 103 on Reporting was amended during that period as other general standards. The
IVS 103 its information and requirements are similar to that of IFRS 13, Fair Value Measurement.
It outlines the requirements when reporting assets in the Statement of Financial Position
(formerly called Balance Sheet). The company must provide evidence of the valuation process,
outlining sources of data and compliance with statutes and other standards.
The IVS 104, Bases of value relates to the IFRS 13. The IVS 104 stipulates the bases of valuation
that include statutes, regulations, private contracts, or other documents. It provides issues to
consider, namely, the assumed transaction, assumed date of transaction, and assumed parties in
the transaction. The IVS 104 outlines the bases of value as:
Market value
Market rent
Equitable value
Investment value
Synergistic value
Liquidation value fair value
Anticipated Income/dividend value
These bases help the valuator estimate the value of the asset in question.
Lastly, on the general standards, the Council amended IVS 105, Valuation Approaches and
Methods. IVS 105 outlines the approaches used in the valuation of assets. The approaches are
based on economic principles of price equilibrium and anticipated benefits. The standard
explains the application of three approaches, namely, market, income, and cost approaches.
Amended Assets Standards
The council amended IVS 200 on Business and Business Interests. The IVS 200 applies all general
standards and it defines the business since the word means different things. The value of a
business differs from its net assets due to goodwill. This standard addresses Ownership rights,
business information, economic and industry considerations, operating and non-operating
assets, and structure considerations. The IVS 200 helps in the valuation of the business.
The IVS 210 on intangible assets was amended. Intangible assets are determined by ownership
rights, function market position, and image. These are invisible assets that one cannot see, smell,
or touch. The IVS 210 incorporates IFRSs and GAAPs in identifying and valuating these assets. The
IVS 210 categorises intangible assets using market-related, customer-related, artistic-related,
contract-related, and technology-based.
Conclusion
The International Valuation Council (2020) amended IVS 220, IVS 300, IVS 400, IVS 410, and IVS
500 which will be covered in the next article. International Valuation Standards help minimise
the valuation problems and helps companies and individuals to value their assets. Ignorant of
these assets cause companies or people to wrongly value their assets leading to losses and wrong
decisions. While standards exist, and the Zimbabwe scenario through relevant statute, requires
valuers to make use of intenational Valuation Standards as standard. It is worthwhile to note that
beyond the standards, there is need to reflect on the conducivity of the valuer environment and
relevant authorities will neeed to ensure gaps are addressed.
Mike E. Juru is the CEO of Integrated Properties. The views expressed in this column are his
own and in no way reflect the thinking of the various professional bodies and associations that
he works with. Mike can be contacted on mejuru@intpro.co.zw
