Double standards?

Those who conduct quarterly valuations are likely familiar with the IPEV board and its guidelines for the private equity and venture capital industry.

In a broader sense, The International Valuations Standards Council is an organisation with a much wider scope, providing cross-industry standards wherever valuations are applicable.

It operates in 137 countries, comprises more than 200 member organisations and 42 countries are represented across standards boards.

IVSC key aims include:

• Encouraging good quality consistent valuations across the world
• Stakeholder engagement in all sectors, including PE
• Collecting advice from around the world, ensuring principle-based valuation standards
• Promoting good professionalism.

There are general and asset specific standards, the latter splitting into three sub-categories: tangible assets, intangible assets/business valuation and financial instruments.

David Larsen, board advisor, managing director at Kroll, and former IPEV board member, explains what this means from a private equity perspective: “PE fits into all three types: In a private company, the equity is a financial instrument, but to come up with the value of that financial instrument, you have to look at the value of the business. So it's also business valuation. In this way, the fields can overlap.”

Across the board
The council is made up of eight boards which help construct the knowledge behind the standards.

Nick Talbot, CEO of IVSC elaborates: “We look for the approach to be complemented by professional bodies in each country. These help to educate and qualify the organisation’s decisions. Things such as local legislation and tax legislation vary significantly around the world, which is not something the valuation standard is going to cover. Local valuation practitioners have an understanding of what's important in their country.”

One of the most important boards IVSC works with is the standards review board, of which Larsen is a member. It is responsible for overseeing the general standards and also oversees asset specific standards, ensuring all standards streams are aligned.

The council has an independent board of trustees to make sure the organisation works in the public interest. This is chaired by Alaistar Darling, former finance minister of the UK.

Spot the difference
The purpose of IVSC compared to the IPEV board is different, as Larsen explains: “IVSC continues to focus on that global all-encompassing enhancing valuation process, while IPEV focuses on the very narrow financial reporting for the alternative assets space. Also, IVSC is more process driven while IPEV guidelines provide a more quantitative and qualitative focus, suggesting how to apply a market approach.”

In the latest IPEV guidelines, an agreement between the two organisations is stated:

“Global valuation standards continue to evolve. The IPEV Board has entered into an understanding with the IVSC with the objective of promoting consistency between the IPEV Board’s Valuation Guidelines and the IVSC International Valuation Standards (IVSs) and to enable these Valuation Guidelines to be positioned as providing sector specific application guidance of the principles in IVS. A valuation of Private Capital Investments prepared in accordance with the IVSs and following these Valuation Guidelines will be consistent with the requirements of applicable financial reporting standards and will also maximise investor’s trust and confidence.”

Consultation time
New standards have come up for consultation this month, welcoming input from stakeholders across the globe.

Proposed updates to the standards include:

• Better alignment with the valuation process
• Elaborating on requirements for data and inputs, valuation models, quality controls, and documentation
• Changing certain requirements and information to improve applicability, readability, and flexibility
• Clarification of roles and responsibilities of parties involved in valuation, such as service organisations and specialists
• Substantial revisions and enhancements to IVS 500 Financial Instruments.

Feedback can be sent to IVSC’s online consultation platform, or via email to IVSC technical director, Alexander Aronsohn (aaronsohn@ivsc.org).

The consultation closes on Friday 28 July 2023, with the revised standards due to be published January 2024, coming into effect July 2024.