The updated International Valuation Standards (the Standards) were published in January 2024 and apply to all valuations from 31 January 2025.
The updated Standards introduce some fundamental changes, including an expanded Glossary, new mandatory requirements, new General Standards and references to ESG.
New structure and new General Standards
The Standards comprise of:
- General Standards that apply to all valuations
- Asset Standards that related to specific valuation disciplines
This report addresses the updated General Standards.
Per the updated Standards, the structure of the General Standards has changed to mirror the logic of the valuation process, as shown in the above figure.
Importantly, this means the numbering of the General Standards has changed and there are three new(ish) General Standards, as follows*:
- IVS 104 Data and Inputs
- IVS 105 Valuation Models
- IVS 106 Documentation and Reporting
* IVS 102 Investigations and Compliance and IVS 103 Reporting are eliminated
Expanded Glossary
The Glossary is expanded and introduces new definitions, including:
- Observable Data: information that is readily available to market participants about actual events or transactions that are used in determining the value
- Professional Judgement: the use of accumulated knowledge, experience and critical reasoning to make informed decisions
- Professional Scepticism: an attitude that includes a question mind and critical assessment of valuation evidence
- Valuation Risk: the possibility that the value is not appropriate for its intended use
IVS 100 Valuation Framework
The Valuation Framework has been expanded. In order for a valuation report to be IVS compliant the valuation must meet the mandatory requirements of the General Standards.
The enhanced Valuation Framework includes:
- Valuer Principles: The valuer must follow Ethical principals to provide a non-biased report, must have the technical skills, knowledge and experience to ensure Competency, must disclose Compliance with the IVS and must apply Professional Scepticism in the valuation process
- Valuation Process Quality Control: that process quality controls must be in place to ensure objectivity, transparency and IVS compliance and that controls should be documented and periodically assessed
IVS 103 Valuation Approaches
There are no obvious fundamental changes to the Valuation Approaches standard. There are, however, a few cosmetic changes:
- Valuation Methods moved: the useful Valuation Methods are now in a separate and easy to follow appendix. Previously these were in paragraphs 30 to 60 of the old standard
- The Valuation Approaches standard is now IVS 103; previously it was IVS 105
IVS 104 Data and Inputs
The new standard IVS 104, deals with the selection and use of data as inputs. IVS 104 states that data and inputs should be based on factual information, reasoning and analysis and that the valuer should maximise the Observable Data.
The standard includes reference to:
- Characteristics of relevant data: that data is Accurate and free from error and bias, Complete and sufficient to address the subject, Timely to reflect the conditions at the valuation date and Transparent, with the data being traceable to the origin
- Input Selection: that inputs must be selected from relevant data, must be sufficient for the valuation model, and adequate and justifiable
IVS 105 Valuation Models
IVS 105 addresses the selection and use of valuation models, how they are to be used in the valuation process and that all models require the application of Professional Judgement to be compliant. Previously valuation models were briefly dealt with at the end of the Valuations Approaches standard, paragraph 90.
The new Standard includes reference to:
- Characteristics of Appropriate Valuation Models: the valuation model must be Accurate and free from error, Complete and addresses all the features of the subject, Timely to reflect the market conditions at the valuation date and Transparent, with all uses and individuals relying on the model understanding how the model works and its limitations
- Selections and Use: that model outputs are analysed for accuracy and significant limitations identified and that the model is maintained, monitored and assess to ensure it meets the Accurate and Complete characteristics
IVS 106 Documentation and Reporting
Under the new 106 standard, an IVS compliant report must have sufficient documentation and reporting to provide transparency to the intended user. The standards sets out the minimum requirements for documentation and reporting:
Documentation: must be maintained and be sufficient to describe the conclusions reached and should describe the valuations and how valuation risk was managed
Valuation Reports: must provide sufficient detail and a clear and well structured description of the basis for the conclusion of value and should include a clear description of the scope of work and the work performed.
Paragraph 30.06 sets out eighteen minimum reporting requirements, an expansion on the ten set out in the old IVS 103 Reporting Standard. The new requirements include: identifying the valuer, the client, the currency, the basis of value, any limiting conditions and the ESG factors considered.
There are replications of the mandatory reporting requirements per the Australian Valuation Standard APES 225 (paragraph 5.2), for example: valuation date, valuation approach and material assumptions. The IVS minimum reporting requirements, however, are more comprehensive than the APES 225 requirements.
Environmental, Social and Governance (ESG)
ESG is now included in the appendices of Data and Inputs standard IVS 104. Per the Standard, the valuer should be aware of relevant legislation in relation to ESG factors impacting the valuation.
The appendix of IVS 104 sets out examples of ESG factors that may impact the valuation both qualitatively and quantitatively, examples include: climate change, natural disasters, data protection, human rights and management succession.
ESG is also referred to in other Standards, including:
- IVS 106: identifying ESG factors used and considered is a mandatory requirement
- IVS 103: differences in ESG considerations could warrant an adjustment under the Guideline Publicly-Traded Comparable and or the Comparable Transaction Methods
Conclusion
The updated Standards are easier to follow (and more colourful!). However, the increased mandatory requirements could be a hurdle for valuers wishing to stamp their reports IVS compliant.
The updated Standards also include an expanded IVS 500 Financial Instrument standard. This is not addressed in the article.
