International Valuation Standards

A Guide to the Valuation of Real Property Assets

David Parker

• Publisher: Wiley-Blackwell
• Year: 2016
• ISBN:
  9781118329825
• Edition: 1
• Topic: Business
• Subtopic: Real Estate
• Index: Business

International Valuation Standards: a guide to the valuation of real property assets is an essential road map to using the new International Valuation Standards in everyday practice for real estate assets, explains their content, application and operation. It shows how to value assets including property, plant and equipment and is written in an explanatory style using commonly understood business English with as little jargon as possible. It takes a thematic format, focusing on the application of IVSs to investment property and owner-occupied property with the author addressing valuation instruction, operation and reporting under IVSs.

1
Market Value

1.0 Introduction

In the context of the valuation of real property assets, this book provides an analysis of the International Valuation Standards (IVS), International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) which, being dynamic, are regularly updated and/or replaced. Accordingly, readers should not rely upon this book as a current statement of an IVS, IAS or IFRS publication and should visit www.ifrs.org and/or www.ivsc.org to find the most recent version.

This chapter seeks to outline the emergence of globalisation, the role of IFRS and the evolution of valuation standards setting, the role of the International Valuation Standards Council (IVSC) and IVSs and an analysis of market value, being the central concept of IVSs, with an overview of other IVSs relevant to the valuation of businesses and business interests, intangible assets and financial instruments.

Chapter 2 will then develop a conceptual framework for valuation based on economic theory, align this framework with finance and capital market theory, examine the definition of the market and distinguish definitions of cost and price from defined concepts of value before reconciling these to the conceptual framework for valuation.

Chapter 3 will consider various aspects of valuation standard definitions within IVSs, discuss the definitions of other relevant contextual terms and identify the principal approaches to valuation within IVSs including a focus on the market approach to valuation.

Chapter 4 will describe and analyse those elements of IVSs that are of relevance to the three principal stages of the real property valuation process, being the instruction of the valuer, undertaking the valuation and reporting the valuation.

Chapter 5 will consider IVSs in the context of the valuation of investment property, with particular reference to IAS 40 Investment Property and the income approach to valuation, including an examination of IVSC TIP 1 Discounted Cash Flow.

Finally, Chapter 6 will focus on IVSs in the context of the valuation of owner occupied property held by operating businesses, with particular reference to IAS 16 Property, Plant and Equipment and the cost approach to valuation, including an examination of IVSC TIP 2 The Cost Approach to Tangible Assets.

In many countries around the world, national and local valuation professional bodies adopt IVSs and supplement them with national or local valuation practice guidance which may expand upon IVSs in a national or local context for the benefit of their membership. However, only the Royal Institution of Chartered Surveyors (RICS) produces global valuation practice guidance that adopts and expands upon IVSs but is not country specific, comprising mandatory professional standards and valuation practice statements and non-mandatory practice guidance applications and practice guidance notes for use by members globally – generally referred to as the RICS Red Book Global (RICS 2013). Accordingly, this book refers to the RICS Red Book Global for the purposes of considering how a professional body interprets IVSs for application by its members worldwide but without a country-specific application.

This book is based upon International Valuation Standards 2013 (IVSC, 2013) and International Financial Reporting Standards 2013 (IFRS, 2013). Given their nature, IVSs, IAS’s and IFRSs are dynamic, being regularly updated and with the most recently published versions replacing previously published versions. Accordingly, readers should not rely upon this book as a current statement of an IVS, IAS or IFRS publication and should visit www.ifrs.org and/or www.ivsc.org to find the most recent version.

1.1 Globalisation and valuation

This section seeks to outline the emergence of globalisation and the role of IFRS, with the following sections considering the evolution of valuation standards setting, the role of IVSC and IVSs and an analysis of market value, being the central concept of IVSs, with an overview of other IVSs relevant to the valuation of businesses and business interests, intangible assets and financial instruments.

1.1.1 Globalisation

Globalisation has increasingly gained pace since the end of the Second World War, with the Bretton Woods Agreement on international monetary policy, commerce and finance, the emergence of container shipping and the growth in international air travel as examples of global developments facilitating increasing international integration in trade and commerce. The late twentieth-century developments in communications, computing and the advent of the internet facilitated even greater globalisation in banking, finance and investment contributing to the current very high level of interconnectedness between the world’s major economies.

The establishment of the International Monetary Fund, World Bank and Basel Committee on Banking Supervision provide examples of the impact of globalisation in the financial markets, with groups such as the G20 providing an example of governmental globalisation. The creation of the European Union led to the free movement of labour and capital across Europe and a common currency, with the fall of the Berlin Wall leading to the creation of independent eastern European states which further enhanced European movement of labour and capital.

A series of bilateral and later regional trade agreements between countries, the formation of GATT and the World Trade Organisation have each fostered the development of international trade and the growth of multinational corporations such as HSBC and Airbus, making it economically feasible for a European based company to manufacture goods in China or India and sell to world markets in the USA or Africa, either directly through the supply chain leading to the world’s shopping centres or indirectly through fulfilment of internet orders.

The increasing impact of globalisation has the effect of reducing the significance of national and political borders and increasing the significance of economic integration. The interconnectedness of the world’s major economies was glaringly apparent during the Global Financial Crisis towards the end of the first decade of the twenty-first century, when problems arising in the US property, banking and finance markets rapidly became problems for the property, banking and finance markets of each of the world’s major economies.

In the context of property, the growth in multinational corporations has significantly increased the amount of property in other countries held by businesses for the purposes of operations. As a result of globalisation, such multinational corporations as HSBC and Airbus have become significant property owners and occupiers in a vast number of countries around the world. Similarly, property investment has rapidly globalised in the last 25 years with the emergence of soverei...