The International Valuation Standards Council (IVSC) plays a crucial role in establishing global standards for real estate valuation. The IVSC has published its 2024 Agenda Consultation, aiming to shape the future of the International Valuation Standards (IVS). This triennial consultation invites stakeholders to provide their input on key valuation topics that are crucial for the ongoing development of IVS.
The Agenda Consultation seeks to gather feedback from a wide range of stakeholders, including valuation practitioners, Valuation Professional Organisations, (VPOs), financial institutions, investors, academics, corporations, and regulators. The IVSC’s mission is to develop, maintain, and promote internationally agreed standards for the valuation of assets and liabilities. This consultation ensures that the IVS reflects the priorities and needs of the global valuation community.
The Royal Institution of Chartered Surveyors (RICS), a leading global professional body for real estate, submitted a comprehensive response to the consultation recently. This article analyses RICS' key recommendations included within the consultation response and their potential implications for accountancy professionals.
RICS’ response to consultation questions
RICS’ responses to the key questions posed in IVSC’s consultation highlight the following key areas:
- Need for improvement: RICS acknowledges the need to improve the IVS to address emerging challenges and opportunities, particularly regarding ESG integration, technology in valuation, and valuation risk.
- Prioritisation: determining the ideal timeline for addressing each topic requires a thorough analysis, considering factors like complexity, market demand, resource availability, and stakeholder feedback. RICS suggests that topics with high market impact and clearer solutions could be addressed within two years, while more complex topics might necessitate a longer timeframe.
- Next steps: the IVSC's next steps should be tailored to each topic's specific needs. This could involve issuing staff research papers, exposure drafts, or collaborating with other standard-setting bodies. RICS emphasizes the importance of stakeholder engagement throughout the process.
- Additional topics: RICS proposes including other relevant topics in the IVSC's agenda, such as the valuation of digital assets, intangible assets, assets in distressed situations, and trade-related/operational real estate.
Key recommendations from RICS
RICS' response to the IVS Agenda Consultation focuses on three primary areas:
- ESG integration: RICS strongly advocates for incorporating ESG considerations into valuation practices. They cite increasing market demand, regulatory compliance, risk management, and long-term value creation as key drivers. RICS proposes additional requirements for ESG materiality assessment, data standards, valuation methodologies, and disclosure.
- Technology in valuation: RICS recognizes the transformative potential of technology in valuation and emphasizes the need for clear guidance for valuers. The consultation response explores potential areas for IVSC consideration, including data management and analytics, valuation modelling and software, automation and robotics, blockchain, and emerging technologies. RICS highlights the importance of addressing challenges like data quality, skill gaps, ethical considerations, cybersecurity, and the regulatory framework. Additional requirements regarding technology competence, data management, model validation, transparency, and ethical considerations are proposed.
- Valuation risk: RICS emphasizes the inherent nature of valuation risk and the importance of addressing it through clear guidance. They propose incorporating requirements for valuation risk identification, assessment, mitigation strategies, sensitivity analysis, disclosure of uncertainties, peer review, and quality control procedures.
Implications of RICS' recommendations on international valuations standards for accountancy professionals
RICS' recommendations for the IVSC's Agenda Consultation have potentially significant implications for accountancy professionals, particularly those involved in financial reporting and auditing. Here are some key areas to consider:
1. Enhanced financial reporting:
- ESG integration: as ESG factors become increasingly material to financial performance, accountancy professionals will need to be equipped to assess and disclose ESG-related information accurately. This includes understanding ESG metrics, data sources, and valuation methodologies.
- Fair value measurement: The IVSC's guidance on technology in valuation can assist accountancy professionals in applying appropriate valuation techniques for fair value measurements, ensuring accuracy and transparency
2. Improved audit quality:
- Valuation risk: accountancy professionals involved in auditing financial statements will need to be more vigilant in identifying and assessing valuation risks. RICS' recommendations on risk identification, assessment, and mitigation strategies can enhance their ability to provide effective audit opinions.
- Technology-enabled auditing: accountancy firms can leverage technology to improve audit efficiency and effectiveness. Tools like data analytics and AI can help identify anomalies, assess risks, and enhance audit quality.
3. Enhanced professional competence:
- ESG expertise: accountancy professionals should consider acquiring specialised knowledge in ESG to effectively address ESG-related financial reporting and auditing requirements. This includes understanding ESG frameworks, metrics, and disclosure standards.
- Technological proficiency: staying updated with technological advancements in valuation is crucial for accountancy professionals. This involves understanding data analytics, AI, and other relevant technologies and their applications in valuation.
4. Increased regulatory compliance:
- ESG regulations: as ESG regulations evolve, accountancy professionals will need to ensure compliance with relevant standards and frameworks. This includes understanding the implications of ESG-related disclosures on financial statements and the audit process.
- Technology standards: adhering to IVS standards on technology in valuation can help accountancy professionals ensure that their firms are using technology in a compliant and effective manner
5. Enhanced stakeholder engagement:
- ESG reporting: accountancy professionals can play a key role in communicating ESG information to stakeholders, ensuring transparency and accountability. This involves understanding stakeholder expectations and tailoring ESG disclosures accordingly.
- Technology adoption: accountancy professionals can help their clients navigate the challenges and opportunities of technology adoption in valuation. This includes providing guidance on selecting appropriate tools, managing risks, and ensuring compliance with relevant standards.
In conclusion, RICS' recommendations for the IVSC's Agenda Consultation have significant implications for accountancy professionals. By understanding and addressing these implications, accountancy firms can enhance their professional competence, improve audit quality, and contribute to the development of a more sustainable and transparent financial reporting landscape.
Jonathan Fothergill FRICS is a Senior Specialist based within RICS’ Investment and Valuation Advisory team. He sits on ICAEW’s Construction & Real Estate Advisory Group.
*The views expressed are the author’s and not ICAEW’s