IVSC Issues Drafts Pertaining to Forest Valuation and Valuation Uncertainty

The IVSC has issued 2 new drafts containing ‘Technical Information Papers’ that have been proposed and that deal with valuation of the forests and valuation uncertainty. The International Valuation Standards Council’s International Valuation Standards were updated last in the month of July in 2011 and consist of principles related to valuations instead of perspective related requirements. The Technical Information Papers of IVSC have been created to offer technical related guidance to professionals on best practices that are usually accepted. However, the papers do not offer valuation instruction or training or suggest that a specific method or approach should not or should be utilized in any particular situation.

The draft on valuation uncertainty suggests the manner in which valuation uncertainty can be explained, disclosed and identified so that it is informative for those who rely on valuations and also responds to the calls made by the regulators of finance and G20 across the globe for enhanced standards of disclosure and transparency of factors associated with valuation uncertainty.

In addition to this the draft also clarifies that uncertainty pertaining to material can occur due to numerous factors such as market uncertainty, uncertainty related to input and uncertainty pertaining to model. While market related uncertainty arises at a time when the market gets disrupted on the date of valuation by existing or extremely recent events like sudden political or economic crises, model related uncertainty occurs due to the characteristics of the valuation method or model that is utilized. On the other hand, input uncertainty occurs where quite a few equally feasible and reasonable assumption or inputs, which can be utilized from the veracity degree can be associated with the data inputs utilized in the valuation as well as their effect on the eventual outcome.

The draft clearly differentiates between market related risks and uncertainty that is caused due to dislocation and disruption caused in the market place. It also discusses several concepts of IFRS as well as their association and interaction with International Valuation Standards.

The second draft is related to the manner in which valuations of forest related assets are prepared as well as presented, especially in view of International Accounting Standard 41 Agriculture that needs to estimate the fair value of the biology related assets.