TOPIC 5:

VALUATION
REPORTING
The critical importance of a Valuation
Report, the final step in the valuation
process, lies in communicating the
value conclusion and confirming the
basis of the valuation, The purpose of
the valuation, and any assumptions or
limiting conditions underlying the
valuation.
Valuation Report indicates the value
conclusion
• It contains. the name of the valuer and the date of
the valuation.
• It identifies the property and property rights
subject to the valuation, and the intended use of
the valuation.
• It discloses all underlying assumptions and
limiting conditions, specifies the dates of
valuation and reporting, describes the extent of
inspection, refers to the applicability of these
standards and any required disclosures, and
includes the valuer’s signature
 Principle Objectives
• To discuss reporting requirements
consistent with professional best practice

• To identify essential elements to be

included in Valuation Reports
Scope
• The reporting requirements addressed in this
standard apply to all types of Valuation Reports

• Compliance with these reporting requirements is

incumbent upon both Internal and External Valuer

• Some instructions involving valuations

undertakes for specific purposes and property
type
 Definitions

1. Compliance Statement
An affirmative statement attesting to the fact that
the Valuer has followed the ethical and professional
requirements of the IVSC Code of Conduct in
performing the assignment.

2. Oral Report
The results of a valuation, verbally communicated
to a client or presented before a court either as expert
testimony or by means of deposition.
3. Special , or unusual, or extraordinary assumptions
May be any additional assumptions relating to matters
covered in the due diligence process, or may relate to
other issues, such as the identity of the purchaser, the
physical state of the property, the presence of
environmental pollutants (e.g., ground water
contamination), or the ability to redevelop the property.

4. Specification for the Valuation Assignment

The first step in the valuation process, which
establishes the context and scope extent of the assignment
and results any ambiguity involving the valuation issue or
problem.
Seven elements of specification for the valuation
assignment

1. an identification of the real, personal( plant,

machinery, equipment, furniture and fixture),
business or other property subject to the valuation
and other classes of property included in the
valuation besides the primary property category.

2. An identification of the property rights (sole

proprietorship, partnership, or partial interest) to
be valued
3. The intended use of the valuation and any related
limitation; and the identification of any
subcontractors or agents and their contribution.
4. A definition of the basis or type of value sought
5. The date as of which the value estimate applies
and the date of the intended report
6. An identification of the scope/extent of the
valuation and of the report
7. An identification of any contingent and limiting
conditions upon which the valuation is based.
5. Valuation Report
A document that records the instructions for the
assignment, the basis and purpose of the valuation, and the
results of the analysis that led to the opinion of value
-It can be either oral or written.

6. Written Report
Detailed narrative documents containing all pertinent
materials examined and analyses performed to arrive at a
value conclusion or abbreviated pertinent narrative
documents, including periodic updates of value, forms used
by governmental and other agencies, or letters to clients.
*Valuation Report shall meet or exceed the
requirements of the International Financial
Reporting Standards (IFRSs)/ International
Accounting Standards (IASs) and the International
Public Sector Accounting Standards (IPSASs).
Statement of Standard
To perform valuations that comply with these
Standards and Generally Accepted Valuation
Principle (GAVP), it is mandatory that Valuers
adhere to all sectors of the IVS Code of Conduct
pertaining to ethics, competence, disclosure, and
reporting.
A. Each Valuation Report shall

1. Identify and accurately set forth the conclusions of the

valuation in a manner that is not misleading

2. Identify the client, the intended use of the valuation, and

relevant dates
The date as of which the value estimate applies.
The date of the report
The date of the inspection

3. specify the basis of valuation, including type and

definition of value
4. identify and describe the
Property rights or interest to be valued
Physical and legal characteristics of the property
Classes of property included in the valuation other than the
primary property category.

5. describe the scope/extent of the work used to develop the

valuation

6. specify all assumptions and limiting conditions upon which

the value conclusion is contingent

7. identify special, unusual, or extraordinary assumptions and

address the probability that such conditions will occur
8. include a description of the information and data
examined, the market analysis performed, the
valuation approaches and procedures followed, and
the reasoning that supports the analysis, opinions,
and conclusions in the report

9. contain a clause specifically prohibiting the

publication of the report in whole or in part, or any
reference thereto, or to the valuation figures
contained therein, or to the names a d professional
affiliation of the valuers, without the written
approval of the valuer.
10. include a Compliance Statement that the valuation has been
performed in accordance with IVSs, disclose any departure from
the specific requirements of the IVSs and provide an explanation
for such departure in accordance with the IVSs Code of Conduct

11.Include the name, professional qualifications, and signature of

the valuer.
It is practice for External Valuer to stamp their official dry seal
and indicate their license number in a report for security
purposes.
It is accepted practice to attach to the valuation report an
accompanying plat/location plan, photographs, and copies of
covering titles, tax declaration and survey plan of the property
being valued.
B. When valuation reports are transmitted
electronically, a valuer shall take reasonable steps
to protect the integrity of the data/text in the report
and to ensure that no errors occur in transmission.
Software should provide for security of
transmission.

The origin, date and time of the sending as well

as the destination, date and time of receipt should
be identified. software should allow confirmation
that the quantity of data/text transmitted
corresponds to the receive and should render the
report as 'read-only' to all except the author.
 The valuer should ensure that the digital signature(s) is/are
protected and fully under valuer's control by means of
passwords, personal identification numbers(PIN), hardware
devices (secure cards) or other means. A signature affixed to a
report electronically is considered as authentic and carriers the
same level of responsibility as a written signature on a paper
copy report

 A true electronic and/or paper copy of an electronically

transmitted report must be retained by the valuer for the period
required by law in his or her jurisdiction, in any event not less
than 5 years. files of the records of electronically transmitted
report may be kept on electronic, magnetic, or other media.
C. The presentation of a valuation report is decided by
the valuer and the client based on the instructions or
specifications for the assignment.

D. The type, content, and length of a report depend on

the intended user of the report, legal requirements,
property type, and the nature and complexity of the
valuation issue or problem.

E. For all valuation reports, sufficient documentation

must be retained in the work file to support the results
and conclusions of the valuation must be held for a
period of at least five years after completion.
Disclosure requirements
 When valuations are made by an internal valuer , specific
disclosure shall be made in the valuation report of the existence
and nature of the relationship between the value and the entity
controlling the asset.
 If a valuer is involved in e valuation assignment in a capacity
other than as a valuer , for example , as an independent or
impartial agent , as a consultant or adviser to a business entity,
or as a mediator , the valuer should disclose the specific role
taken in each assignment .
 the value shall disclose the regulatory framework and any
departure required from these standards to comply with local
legislation , regulation (including accounting rules) , or
custom.
Departure provisions
No departures is permissible from the requirements that
each valuation report clearly and accurately set forth the
conclusions of the valuation, and clearly disclose any
assumptions and limiting conditions, which affect the
valuation conclusion.

 
TOPIC 6:
VALUATION FOR
FINANCIAL
REPORTING
Valuation for Financial Reporting
The objective of this application is to explain
the principles that apply to valuations prepared
for use in financial statements and related
accounts of business entities . Valuers
undertaking work of this nature should have an
understanding of the accounting concepts and
principles underlying the relevant international
accounting standards .
International Valuation Standards (IVSs)
Facilitate cross border transactions and viability of
global markets through harmonization and transparency
in financial reporting. As such this application is
developed in the context of international financial
reporting standards (IFRSs) as a 31 march 2004.

DEFINITIONS
1. Depreciated Replacement Cost
The cost of replacing an asset with its modern
equivalent asset less deductions for physical
deterioration and all relevant forms of obsolescence and
optimization .
2. Improvements
Buildings, structures or modifications to land, of a
permanent nature, involving expenditures of labor and capital
and intended to enhance the value or utility of the property .
3. Market Value
The estimated amount for which a property should
exchange on the date of evaluation between a willing buyer
and willing seller in an arm's-length transaction after proper
marketing where in the parties had each acted
knowledgeably, prudently without compulsion.
4. Specialized Property
A property that is rarely if ever sold in the market , accept
by way of sale of the business or entity of which it is part ,
due to uniqueness arising from its a specialized nature and
design , its configuration , size , location , or otherwise
5. Carrying Amount
The amount of which an asset is recognized after deducting
any accumulated depreciation(amortization) and accumulated
impairment losses thereon.
6. Cash -Generating Unit
The smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from
other assets or group of assets .
7. Depreciable Amount
The cost of an asset , or other amount substituted for cost( in
the financial statements), less its residual value .
8. Depreciation
The systematic allocation of the depreciable amount of an
asset over its useful life
9. Economic life
A) The period over which an asset is expected to be
economically usable by one or more users.
B) The number of production or similar units expected
to be obtained from the asset by one or more users .
10. Fair Value
The amount for which an asset could be exchanged or
a liability settled between knowledgeable willing parties
in an arm's -length transaction .
11. Fair Value less Cost to Sell
The amount of table from the sale of an asset or cash-
generating unit in an arm's- length transaction between
knowledgeable, willing parties , last the cost of disposal .
12. Impairment Loss
The amount of which the carrying amount of an asset or cash
generating unit exceeds its recoverable amount .
13. Investment Property
Property (land or building, or part of building, or both) held (by
the owner of by the lessee under a finance lease) to earn rentals or for
capital appreciation, or both, rather than for.
A. Use in the production or supply of goods or services or for
administrative purposes
B. Sale in the ordinary course of business
14. Net Realizable Value
The estimated selling price in the ordinary course of business,
less decimated cost of completion and the estimated costs necessary
to make the sale .
15. Owner-Occupied Property
Property held (by the owner or by the lessee under a
finance lease) for use in the production or supply of goods
or services or for administrative purposes.
16. Property , Plant , and Equipment
Tangible items that
A. Held for use in the production or supply of goods or
services, for rental to others , or for administrative purposes
B. Are expected to be used during more than one period.
17. Recoverable Amount
Is the higher of its fair value less costs to sell and its value
in use .
18. Residual Value .
The estimated amount that an entity would currently
obtained from disposal of an asset , after deduction the
estimated cost of disposal , if the asset were already of the
age and in the condition expected at the end of its useful
life .
* Revalued Amount- Fair market value less accumulated
depreciation / accumulated impairment losses.
Useful life. The period over which an asset is expected to
be available for use by an entity.

*Value in use- The present value of the future cash flows

expected to be derived from an asset or cash generating unit
.
 Relationship to Accounting Standards

This application focuses on valuation requirements under

IAS 16, Property , Plant and Equipment;17 , leases; and IAS
40, investment property .

Classification of Assets
Designating them as a personal assets or non-
operational assets.
Application Standards
The classification of assets determines which IAS or
IFRS applies.
Other accounting standards that require or permit the
valuation of tangible assets include:

1. Investment property -AIS 40

2. Leases-IAS 17
3. Inventories-AIS 2
4. Impairment of assets -IAS 36
5. Business Combinations -IFRS 3
6.Non-current Asset Held for Sale and Discontinued
Operations-IFRS 5
7. Cost and Fair Value -AIS 16
8.Valuation under IAS 16.
Where an entity adopts fair value revaluation option under IAS 16,
the assets are included in the balance sheet at their fair value as
follows:

A." Fair value of land and buildings is usually determined from

market base evidence by the appraisal that is normally undertaken
by professionally qualified valuers . The fair value of items of
plant and equipment is usually their market value determined by
appraisal"(IAS 16).

B. " is there is no market based evidence of fair value because of

the specialized nature of the item of property , plant and equipment
and the item is rarely sold , except as a part of continuing
business , an entity may need to estimate fair value using an
income or depreciated our replacement cost approach".(AIS 16)
9. Valuations under IAS 40- Investment Property
Where an entity opts to account for investment property using the fair
value model , IVSC considers that the requirements of the model are met
by the Valuer adopting Market Value.
10. Valuation Requirements for Leased Assets- IAS 17
-leased assets are classified under IAS 17 as either finance leases or
operating leases.
-if a lease is classified as a finance lease, the fair value of the assets is
required to establish the amount of the asset and liability recorded by the
entity on its balance sheet.(IAS 17, Para.20)
 
11. Valuation of Impaired Assets- IAS 36.
impairment arises where there is a permanent decrease in the value of an
asset below its carrying amount. the entity is required to write down the
carrying amount of an impaired asset to the higher of its value in use or
fair value less cost to sell.
12 . Valuations After business combinations- IFRS 3
Where a business acquires or is merge with another , the
acquire has to account for the assets and liabilities of the
acquiree at their fair value as of the acquisition date . for
identifiable assets and liabilities , IVSC considers that the
value where should report the market value as they existed
at the date of acquisition .
13 . SURPLUS ASSETS- IFRS 5
Under IFRS 5, Non-Current Assets Held for Sale and
Discontinued Operations. Surplus assets are to be separately
identified . Such assets may be accounted for individually
or as a "disposal group", i.e., a group of assets to be
disposed of together by sale or otherwise , and the liabilities
directly associated with those assets that will also be
transferred in the transaction .
14 . Properties held for sale in the ordinary course
of business- IAS 2.
Valuations of properties held for sale in the ordinary course
of business should comply with the requirements of IAS 2 ,
Inventories .
15 . Selling costs
when instructed to value impaired or surplus assets , or
assets that are held for sale in the course of business , the
value we must report their market value without deducting
selling costs . 
16 . Biological assets - IAS 41
- These include agricultural and forestry assets . The value
and value these assets in accordance with the guidance in
GN 10 .  
17. Co-operation with auditors
Subject to first obtaining the consent of their client , valuers
shall discuss and explain their valuations openly with the
entity's auditors .
18. Identification of asset class
Separate disclosures are required for each class of property ,
plant and equipment. A class of property , plant or equipment
is a grouping of assets of a similar nature and use .
Examples of separate classes
a) Land e) aircraft
b) land and buildings f) motor vehicles
c) machinery g) furniture and fixtures
d) Ships h) office equipment
19 . Depreciation- IAS 16
Valuers may be requested to allocate value between different
elements of an asset , to advise on the residual value or to
advise on the future life of an asset .
a) Elements of cost
-Any part of an item , which has a cost that is significant in
relation to the total cost of the item , as to be depreciated
separately.
-Valuers maybe consequently requested to allocate evaluation
they have provided to the different component parts of an asset
in order to enable the entity to depreciate them separately .
b) Residual Value
is deducted from the carrying amount of the asset to determine
the amount the entity has to depreciate
 c) Future life
a valuer can advise on the remaining economic life of the asset
when reporting the economic life of buildings , improvements ,
plant , machinery and equipment , it should be stated that this is
not necessarily the same as the useful life to the entity , which is
subject to any policy of the ended on future disposal or renewal .
 
d) Reporting Requirements:
when providing a locations , estimating the residual value of an
element of an asset based on an apportionment of the value of
the completes asset comma the value where should state that the
figures provided are hypothetical allocations of the value of the
whole item prepared solely for calculating the appropriate rate
of depreciation in the entity's financial statements , and that
these figures should not be relied upon for any other purpose .
20. Alternative Use Value
If an owner occupied property has potential for an alternative use , which
would result in its value and isolation from the business being higher than its
value as part of the cash-generating unit to which it belongs, the value where
shall report the market value for that alternative use .
21. Specialized Property
Both IVSs and IAS 16 recognize that there are categories of assets for
which market-based evidence may be unavailable because of their
specialized nature . It endorses the application of either an income or
depreciated replacement cost approach to the valuation of these assets .
22 . Frequency of Revaluation
Paragraph 31 of IAS 16 states:
"Evaluations shall be made with sufficient regularity to ensure that the carrying
amount does not differ materially from that which would be determined using
fair value at the balance sheet date" 23. IAS 17- Leased Property, Plant and
Equipment. -deals with accounting for assets that are held under a lease. All
leases require classification as either operating leases or finance leases.
24 . IAS 40- Investment Property.
defines an investment property as a property (land or building or part of a
building or both) held by the owner , or by a lessee under a finance lease ,
to earn rentals , or for capital appreciation or both
 
*Investment Property is measured initially at cost . After initial
recognition an entity may choose to adapt either:

a) The Fair Value Model

Investment property should be measured at fair value and changes
recognized in the profit and loss statement; or
b) The Cost Model
The "historic" cost model is in accordance with the model described in
IAS 16. An entity that chooses the (historic) cost model should
nonetheless disclose the fair value of its investment property.
 
*Leasehold Investment Property. A property held
under a lease, rather than owned outright and that
otherwise meets the definition of an investment property
, may be accounted for using the fair value model .
 
*External Valuations. Entities are encouraged , but
not required , to determine the fair value of investment
property on the basis of evaluation by an independent
(External) Valuer who holds a recognized and relevant
professional qualification and who has recent experience
in the location and category of the investment property
being valued (IAS 40, Para. 26)
 
25. Other requirements under IASs

a) Portfolios: a collection or aggregation of properties

held by a single ownership and jointly managed.

b) Impairment: an entity is required , under IAS 36

Impairment of Assets , to review , at each balance
sheet date , whether there is any indication that a
tangible asset may be impaired .
c) Disrupted Markets: When markets are disrupted or
suspended , Valuers must be vigilant in their Analysis.
✓Disclosure Requirements

* The valuer shall make all disclosures required under IVS 3,

Valuation Reporting.

*The Valuer shall disclose the regulatory framework and any

departure required from this Standards to comply with local
legislation, regulation (including accounting rules) , or custom .

✓Departure Provisions
In following this application any departures must be in
accordance with directions made in IVS 3, Valuation reporting