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Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited
Valuation: the professional challenge
Article Type: Editorial From: Journal of Property Investment & Finance, Volume 30, Issue 4
The International Valuation Standards Council (IVSC) is an independent body that sets global standards for valuation, especially those that will be relied upon by investors and other third party stakeholders. Its standards cover a comprehensive range of assets including real property, businesses, financial instruments intangibles and machinery and equipment. The International Valuation Standards were comprehensively revised in 2011. It also promotes the development of the valuation profession around the world and collaborates and cooperates with other organisations concerned with standards and regulation in the financial markets.
One of the challenges faced by the IVSC is the fragmentation of the valuation profession globally. As a consequence it is difficult to engage politicians and financial regulators with a single voice. This theme was revisited following a speech late last year given by Paul Beswick, the Deputy Chief Accountant of the US Securities and Exchange Commission, to the AICPA Annual Conference which directly challenged the valuation profession to organise itself more effectively.
Beswick was obviously speaking specifically about the situation in the USA, but it would be naive to think that the concerns being voiced are either not applicable elsewhere or that they are not known and shared by other national regulators. His particular area of focus is valuation in financial reporting and clearly there are frustrations at a perceived lack of a clearly defined professional identity for the professionals who either provide valuations for management or who act as an auditor’s specialist in reviewing those valuations.
In his speech he highlights the fact that there are at least five credentials for business valuation offered by different US bodies. There are actually many more than this if asset specific qualifications, such as for real estate, capital equipment, minerals or agriculture are taken into account. This multiplicity of credentials is not seen as a problem in itself, but the lack of a coherent and consistent identity does create difficulties and risks. Not least among these risks is that with no recognised common benchmark for becoming a professional valuer, individuals or firms with no formal training or credentials can describe themselves as such.
He concludes by suggesting that there should be a single set of qualifications with regard to education level, work experience and continuing education and standards of practice and ethics, supported by effective enforcement and disciplinary measures.
While it is not within the remit of the SEC to regulate valuers, concerns it raised of auditing practices over a decade ago were instrumental in Congress creating the Public Company Accounting Oversight Board that does regulate and monitor auditors. It does not take a huge leap of imagination to see that a similar body might emerge to regulate valuers in the USA if the valuation profession cannot act cohesively to provide solutions. And once again, this could roll out way beyond the USA. There are now equivalent bodies with the remit to monitor and regulate accounting and auditing in many countries, and an organisation formed to foster international cooperation between them, the International Forum for Independent Audit Regulators.
While calls for a single set of qualifications for professional valuers may be rather too ambitious given the spread of asset and business types that require valuation, there should be sufficient common ground to set a broad framework for defining the competencies required, and for working to the same principles of ethical conduct.
The greatest challenge for the valuation profession is for the various professional bodies whose membership consists entirely or partly of valuation experts to recognise the distinction between a unified and a united profession. Even within the USA, the SEC probably recognises that forcing different and disparate bodies to merge is unrealistic. Differences of geography or asset type mean that both the profession and the public are more effectively served by a plurality of professional organisations, and even by a certain amount of competition between them, e.g. in terms of member service. However, if those organisations can unite behind common standards for education, behaviour, service delivery, monitoring and regulation it would mitigate the risks arising to both the public and their image from a lack of a clear identity for the profession as a whole.
Within the IVSC, the Professional Board was formed to help develop the profession globally. It is currently consulting on a draft common competency framework, and after extensive consultation has recently published a Code of Ethical Principles for Professional Valuers. Although there are around sixty Valuation Professional Organisations in membership of IVSC at present, it is actively seeking bring more established bodies or nascent groups into membership to help identify and implement the steps needed to create a profession that is united in the eyes of the wider markets and the global regulatory community.