Consistent valuations key to restoring confidence

14 Mar 2014

A high-profile collaboration over a high profile measurement – that’s perhaps the best way to describe the IVSC and IFRS Foundation’s formal agreement to work together on fair value.

The International Financial Reporting Standards Foundation and International Valuation Standards Council have agreed to formalise their “present and continuing cooperation” over issuing requirements on fair value measurement, sharing expertise and cooperating over areas of “mutually supportive work”.

Fair value measurement has been under the magnifying glass in recent years, as regulators seek to understand if and how its application played a role in the financial crisis. In an article for World Watch, PwC valuation specialist John Glynn pointed out that many of those scrutinising fair value measurement are “not liking what they [see]”.

The IVSC’s Chairman, Sir David Tweedie, has talked about the need to improve the consistency of the application of fair value. In a statement to the press, he said that “Strengthening the financial system requires the elimination of any significant differences in the way that fair value is understood, and consequently reported, between different sectors and markets.”

The proposed collaboration could improve standards and “increase transparency, consistency and confidence in financial reporting” he added.

The IFRS Foundation’s Chairman, Michel Prada, admitted that “fair value for the purposes of financial reporting is a challenging area with wide-reaching implications…we recognise the need to interact and exchange information”.

The collaboration takes place against a backdrop of rising recognition of the IVSC. The body has been garnering sponsorship from large commercial interests, including PwC , that are interested in global valuation standards that could enhance the comparability of valuations. And it’s comparable and consistent valuations, says the IVSC, that could play a role in restoring confidence in the financial markets.