International valuation standards

IVSonline provides subscribers access to the current IVSs and all approved TIPs.

The April 2013 National E News included advice that the API had reached agreement with the International Valuation Standards Council (IVSC), and established relevant links and protocols, to provide online access for valuer members to IVSonline.

IVSonline provides subscribers access to the current IVSs and all approved TIPs. Not only is all the material in one place but it provides users with easy navigation across the publications and the facility to search for key words or subjects.

Any valuer member who has not accessed the standards should complete the registration form and forward it to the API National Office - please note access is free of charge.

Members will then be registered and emailed a username and password. They will access www.elearning.api.org.au.

Once logged in there will be a link visible for International Valuation standards and Technical Information Papers. Members can click the link and be taken directly to the IVSonline page.

Publications and pronouncements currently available through IVSonline include:

• Overview of changes from IVS 2011 to IVS 2013
• International Valuation Standards 2013
• TIP 1 – Discounted Cash Flow
• TIP 2 – The Cost Approach for Tangible Assets
• TIP 3 – The Valuation of Intangible Assets
• Answers to FAQ

Please note the changes in IVS 2013 primarily reflect minor updating of IVS 2011 where references were made to other documents as well as minor amendments to provide greater clarification.

The API is adopting IVS 2013 effective from 1 January 2014.

The 2013 version of the International Valuation Standards (IVS 2013) is also now available for sale in hard copy via the IVSC website.

IVS Definitions

IVSC definitions are covered in IVS 2013 as well as the International Valuation Glossary which can be found at www.ivsc.org.

These definitions are adopted by API and to the extent that there are any variations between the Glossary of Property Terms (joint publication of the Property Council of Australia, the Australian Property Institute and the Real Estate Institute of Australia) and the International Valuation Glossary, the International Valuation Glossary shall apply.

All members should check definitions used in their valuation reports to ensure that where appropriate they are in line with the International Valuation Glossary.

Some of the International Valuation Glossary definitions commonly used in valuation reports include:

Fair Value

i. The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties. For use in financial reporting under International Financial Reporting Standards, fair value has a different meaning:

ii. In IFRS 13 “Fair Value is 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.”

The distinction between these two definitions and their usage is discussed in the IVS Framework paras 39-43 and IVS 300, paras G1-G2

Note: For financial reporting purposes in Australia the definitions of the Australian Accounting Standards Board (AASB) apply. The definition is the same as IFRS13.

Highest and Best Use

The use of an asset that maximises its potential and that is physically possible, legally permissible and financially feasible.

Note: For financial reporting purposes in Australia the definition of the Australian Accounting Standards Board (AASB) applies.

Market Rent

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion

Market Value

The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

Professional Practice

Effective from 1 January 2014, Professional Practice will encompass the following:

IVSCAPI/PINZ
 
International Valuation Standards 2013Section Topic
 
TIP 1 – Discounted Cash Flow1Foreword
 
TIP 2 – The Cost Approach for Tangible Assets 2Code of Professional Conduct
 
TIP 3 – The Valuation of Intangible Assets 3Deleted
 
4 Deleted
 
5 Deleted
 
6 Deleted
 
7 API & PINZ Practice Standards
 
8 API & PINZ Valuation Guidance Notes
 
9 API Valuation Guidance Notes
 
10 PINZ Valuation Guidance Notes
 
11 API & PINZ Real Property Guidance Notes
 
12 API Real Property Guidance Notes
 
13 PINZ Real Property Guidance Notes
 
14 Business Focus
 
15 Client Focus
 
16 Valuation Pro forma
 
17 Index


 

Progressively the API / PINZ Standards and Guidance Notes will be reviewed and subsequently re-issued as API /PINZ Technical Information Papers.

Before finalization each of these documents will be issued as an Exposure Draft for comment by members and industry alike.

The first API/PINZ TIP to be issued as an Exposure Draft may be viewed by clicking here. The TIP, Market Value of Property, Plant & Equipment as part of a Going Concern Business, was first issued as a Guidance Note effective from 1 August 2011.

The objective of this TIP is to provide information, commentary, opinion, advice and recommendations to Members determining market values of property, plant and equipment where those assets are integral to a going concern business. This TIP covers various situations to assist Members in undertaking such valuations.

It is also intended this TIP will assist users of valuation reports to understand the basis upon which valuations of property, plant and equipment are undertaken in these circumstances. It should be used in conjunction with other TIPs and/or practice standards which are either over-arching or directly applicable to the issues involved.

This TIP is intended to provide guidance in any situation where a market valuation of property, plant and equipment forming part of a going concern business is required. This assumes that the assets would be sold as part of a going concern or continuing business. The market value determined for the property plant and equipment must be supported by the cash flows of the going concern business in which they operate unless it can be clearly demonstrated that the assets in aggregate have a higher realisable value separate from the business.

Often these assets are specialised operational assets, the value of which cannot be readily assessed by reference to market prices.

Non-operational, surplus assets that will not continue to be used as part of the going concern business (e.g. assets which are approaching or at the end of their economic life) should be valued based on their market value assuming they will be sold separate from the going concern business. Such a value may be higher or lower than the value as part of the going concern business depending upon the specific circumstances, but should reflect the highest and best use of the assets assuming they will no longer be used as part of the going concern business.

This may include alternative use value in the case of real estate. In respect of plant & equipment such a value should assume that the assets will be sold for removal (commonly referred to as net realisable value).

Where the income approach has been used to assess the market value of a going concern business, the value determined will include all the assets used in the business, including tangible and intangible assets and liabilities (to the extent they are used to derive income).

Tangible assets may include real property and plant and equipment, and intangible assets may include business licenses, patents, patterns, designs, intellectual property, goodwill, etc. Depending upon the purpose of the valuation, an apportionment of value to the various asset classes may be required.

Valuations of assets of a business that assume continuation of the going concern business or service should not be construed as representing the market value of those assets in the event that the going concern business or service ceases to exist.

Valuers should exercise extreme care when being asked to undertake a going concern valuation for mortgage purposes or where it is likely that the valuation will be shown by the client to a financier. Valuations as a going concern are often heavily dependent on the quality of the existing operator. As such, the mortgage risk in lending money against a property that has been valued as a going concern is often very high, particularly if the transaction being financed involves a sale of the business.

This is why many financiers insist that any valuation for mortgage purposes exclude goodwill. Valuers undertaking such work should be careful to confirm their instructions direct with the financier, and undertake a detailed risk analysis. Valuers should also ensure that they have sufficient expertise to perform such a valuation, given the level of risk involved.

This TIP recognises the International Valuation Standards (IVSs) prepared by the International Valuation Standards Council. The guidance in this paper presumes that the reader is familiar with the IVSs.

Please email any feedback to the Australian Property Institute at national@api.org.au by COB 28 February 2014.

Any queries to the above advice should be directed to Tony McNamara on 0413 235 432 or tmcnamara@api.org.au in the first instance.