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R.E. Appraisal & Valuations (David Parker) (International Accounting…
R.E. Appraisal & Valuations (David Parker)
International Valuation Standards
Benifits
reduce the effects of systemic risk
contribute to efficient and effective functioning and stability of global capital debt markets
reduce information costs
converging valuation and accounting regulation internationally
assist emerging and developing economies
transparency and credibility of valuations in financial reporting globally
"Clients need to understand that valuations produced in Massachusetts, Manchester, Melbourne, Moscow, or Matabeleland is reliable in its standards and methodologies"
(Gilbertson 2002)
IVS Framework
3 principal approaches to valuation
income approach:
provide an indication of value by converting future cash flows to a single current capital value.
IVS 230 recognises 3 principal forms of the income approach:
income capitalisation, DCF and option pricing models
cost approach:
provides an indication off value using the economic principal that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or by construction.
market approach:
provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available
5 forms of value
Synergistic Value
Fair Value
Investment Value
Special Value
Market Value
3 key concepts
Cost:
the amount required to acquire or create the asset
When that asset has been acquired or created, its cost is a fact. Price is related to cost because the price paid for an asset becomes its cost to the buyer.
Value is principally a judgment of one of two things, being either the most probable price in exchange or the economic benefits of ownership.
A basis of valuation can fall into one of three principal categories:
the most probable price that would be achieved in a hypothetical exchange in a free and open market.
Market value
as defined in these standards falls into this category.
to indicate the benefits that a person or an entity enjoys from ownership of an asset. The value is specific to that person or entity, and may have no relevance to market participants in general.
Investment value
and
special value
as defined in these standards fall into this category.
the price that would need to be reasonably agreed between two specific parties for the exchange of an asset. Although the parties may be unconnected and negotiating at arm's length, the asset is not necessarily exposed in the market and the price agreed may be one that reflects the specific advantages or disadvantages of ownership to the parties involved rather than the market at large.
Fair value
as defined in these standards falls into this category.
Price:
the amount asked, offered or paid for an asset.
Because of the financial capabilities, motivations or special interested of a given buyer or seller, the price paid may be different from the value which might be ascribed to the asset by others.
7 key
contextual terms
Trade Related Property
Intangible Asset
Investment Property
Goodwill
Real Property
Market Rent
Real Estate
International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS)
1st Objective
: to develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based on clearly articulated principals.
2nd Objective
: to promote and facilitate the adoption of IFRS through the convergence of national accounting standards and IFRS's.
Important
: IAS 16 Property, Plant and Equipment, IAS 17 Leases, IAS 36 Impairment of Assets, IAS 40 Investment Property, IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, IFRS 13 Fair Value Measurement
Valuer Behaviour
There are 2 components that contribute to the reliability and validity of valuations:
1.
the
capability
of the valuer to process in a
consistent
manner an available information set.
2
. the valuer's ability
to reflect
accurately the
reaction of market
participants to that information.
Client Influence
Types of Influence:
reward power and coercive power
expert power
information power
review of draft valuation
Primary factors affecting the degree to which clients influence valuations are:
type of client :
characteristics of valuer and valuation firm
purpose of the valuation
information of endowment of client and valuer
Conflict of Interest
Various Issues Identified by Baum.
Lease Restructuring, Leasehold Enfranchisement and Ratings