Valuation Standards

C O M P O N E N T 4 . 2

A P P R O A C H T O

DEVELOPING THE PHILIPPINE VALUATION STANDARDS

Objectives

Provide consistency & understanding between providers & users of valuations

Raise the quality of public & private sector valuations & reporting

Promote transparency & reliability of valuations

Reduce financial risk for users of valuations

Review of existing national, regional & international Standards

Existing Standards used in the Philippines (private sector)

Uniform Standards of Professional Appraisal Practice (USPAP) International Valuation Standards (IVS)

Royal Institution of Chartered Surveyors (RICS) ‘Red Book’

ASEAN Valuation Standards?

Aus/NZ Professional Practice

The European Group of Valuers Associations (TEGOVA)

A P P R O A C H T O


Operational Considerations

Harmonized with the IVS

Vigorous technical review by a TWG & exposure to stakeholders

Upon completion, it shall be endorsed & promulgated by the DOF Secretary

Standards to be adopted initially by the Public Sector & the Private Sector expected to follow

A P P R O A C H T O


PVS Draft

Philippine Valuation Standards

Technical Review & Exposure

PROCEDURES FOR THE DEVELOPMENT OF THE PHILIPPINE VALUATION STANDARDS

A FOUR-STAGE PROCESS

Maintenance & Revision

Approval & Implementation

1 2

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WHAT ARE STANDARDS?

Standards ARE statements of:Recognised principles & conceptsBest practices in valuation services & reportingAccepted definitions

They do NOT:X Describe different valuation techniquesX Prescribe specific methods of valuation for different

purposesX Tell valuers how to value!

THE PHILIPPINE VALUATION STANDARDS

overview

WHAT CONSISTS THE STANDARDS?

I. Fundamentals

II. Core Standards

III. Application Standards

IV. Guidance Notes

P H I L I P P I N E V A L U A T I O N S T A N D A R D S

I . F U N D A M E N T A L S

1. CONCEPTS FUNDAMENTAL TO GAVP Foster understanding among professional disciplines & to

alleviate difficulties arising from language barriersDefine and explain basic valuation terms & concepts (eg,

Real Estate; Real Property; Personal Property; Asset; Market Value; Price; Cost &Value; Highest & Best Use)

Provide commentary on basic, legal, economic, & conceptual frameworks which serve as basis of the valuation discipline and its standards3 market-based valuation approaches: 1)Sales Comparison2)Income Capitalization 3)Cost

2. CODE OF CONDUCT

Addresses the ethical & competency requirements of Valuers

Serves the public interest

Ensures that the results of valuations are reliable,

consistent, & unbiased



3. PROPERTY TYPES

Real property

Personal property

Businesses

Financial interests




core standards


I I . C O R E S T A N D A R D S

1. MARKET VALUE BASIS OF VALUATION

Market Value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and

without compulsion.

2. BASES OTHER THAN MARKET VALUE

3. VALUATION REPORTING


valuation

applications


I I I . V A L U A T I O N A P P L I C A T I O N S

1. VALUATION FOR FINANCIAL REPORTING

A direct extract from the International Accounting Standards (IAS) & International Financial Reporting Standards (IFRS)

Defines & categorizes assets (including land & buildings, machinery, etc) for accounting purposes

2. VALUATION FOR SECURED LENDING PURPOSES

Reduces risk through exposure to inaccurate valuations used by the banking sector.

3. VALUATION OF PUBLIC SECTOR ASSETS FOR

FINANCIAL REPORTING

Explains the requirements for valuing assets owned or controlled by government or quasi-government bodies

Measures public assets at either ‘Historic Cost’(less accounting depreciation) or ‘Fair Value’ (i.e., mark-to-market value)


I I I . V A L U A T I O N A P P L I C A T I O N S


guidance notes


I V . G U I D A N C E N O T E S

1. REAL PROPERTY VALUATION

Summarizes the appraisal process & minimum requirements to arrive at a reasonable & realistic valuation 3 approaches to value (Cost, Income, Sales Comparison) Market value, HABU, etc.

2. VALUATION OF LEASE INTERESTS

Explains leasehold interests & the bundle of rights Shows the hierarchy of rights & interests inherent in the

leasehold

3. VALUATION OF PLANT, MACHINERY & EQUIPMENT

Common approach to value is by Depreciated Replacement Cost [Replacement Cost New Less Depreciation (RCNLD)]

4. VALUATION OF INTANGIBLE ASSETS

Discusses intellectual property rights, patents, trademark, goodwill, franchise, legal life of intangible asset, etc.

Provides the basis for comparison with other types of valuations



5. VALUATION OF PERSONAL PROPERTY

Provides guidance on the valuation of personal property (eg, works of art, antiques, collectibles, furniture, fixtures & fittings, equipment, etc.)

6. BUSINESS VALUATION

Covers the valuation of businesses for the purpose of shareholdings, acquisitions & disposals

Shows the relationship between the property assets as part of a going concern & the overall value of the business



7. CONSIDERATION OF HAZARDOUS & TOXIC SUBSTANCES IN

VALUATION

Provides guidance for situations where environmental conditions may have an adverse effect on property values

Particularly relevant to land-fill sites, & residential areas affected by industrial pollution (fumes & smell from waste dumps,

etc.) & power transmission lines



8. THE COST APPROACH FOR FINANCIAL REPORTING (DRC)

The basic guidance for DRC valuations: defines physical, functional & external obsolescence

Introduces the concepts of ‘subject to adequate profitability’ & ‘service provision’ (in the case of public buildings)

NB: These are concepts for financial reporting rather than for Real Property Taxation (RPT).



9. DISCOUNTED CASH FLOW (DCF) ANALYSIS FOR MARKET

VALUATIONS & INVESTMENT ANALYSES

Provides the approach in valuing businesses & certain types of investment properties

Emphasizes the level of expertise & specialist’s skill required in undertaking such valuations

10. VALUATION FOR AGRICULTURAL PROPERTIES

Provides guidance on valuation related to crop production Provides guidance on categorizing non-realty elements &

on adopting different valuation approaches for different asset elements



11. REVIEWING VALUATIONS

Distinguishes between administrative (compliance), desk, field, technical, & valuation reviews

Explains the purpose of the review as a reference point (eg,

for senior valuers carrying out informal reviews of their staff’s work)

12. VALUATION FOR TRADE RELATED PROPERTIES

Relates to valuation of hotels, gas stations, restaurants, etc. Provides that the DCF is the normal approach adopted for

individual valuations of these properties



13. MASS APPRAISAL FOR PROPERTY TAXATION

Discusses the methodology for Ad Valorem Property Taxation, or statistical and economic studies under government administrative programs

Recognizes that valuations undertaken for taxation purposes are carried out in compliance with local laws & regulations.



14. VALUATION OF PROPERTIES IN THE EXTRACTIVE INDUSTRIES

Differentiates between mineral extraction & the petro-chemical industry in accordance with the UN Framework Classification

Provides a general explanation of the industries & terminology used

Differentiates between 4 categories: exploration, resource,development, & production properties & emphasizes the specialist nature of quantifying reserves, etc.



15. VALUATION OF HISTORIC PROPERTY

Provides guidance on valuing heritage properties

Justifies the 3 valuation approaches as applicable to the type & use of the property being valued (eg, functional, income producing, monumental, etc.)




approval &

implementation


APPROVAL & IMPLEMENTATION

Approved by DOF

Adopted by LGUs

For General Valuations

For Real Property Tax Valuations

Exposure to NGAs

Study of a

Single NGA

Accepted by NGAs

Amend Administrative

Orders / Rules & Regulations

Draft 4 - Final Draft(Standards After Exposure)


APPROVAL & IMPLEMENTATION

BSP thru its Dept. of Loans & Credit (DLC), Asset Management Dept.(AMD) and the Supervision & Examination Sector (SES) agreed to adopt and implement the PVS

DLC & AMD revised its TOR incorporating the mandatory use of PVS by their accredited appraisal companies

SES will be issuing a circular addressed to CEOs of member banks thru the BAP on adopting the PVS

NGA STUDY

Thank You!

Documents

Valuation Standards