Framework attempts to standardize valuations

The Mandatory Performance Framework outlines how much work is required to generate auditable fair value assessments.

A framework designed to create standardized fair value estimations has been launched as part of a wider, optional certification regime for valuations professionals.

The Mandatory Performance Framework quantifies how much work is necessary to provide supportable and auditable fair value measurements. It is part of the Certified in Entity and Intangible Valuations credential, which was designed by accountancy bodies and firms to boost consistency and transparency in the fair value measurement process.

Compliance with the framework is mandatory for professionals that opt to become certified under CEIV, but is likely to be adopted by those that are not certified to demonstrate the strength of their methodologies, according to one source.

“Private funds, especially those who report using US GAAP, will likely be required to adopt the MPF,” David Larsen, a managing director at professional services firm Duff & Phelps, said. “Increasingly funds of all sizes are focusing more efforts on improved valuations proceses. In future it may be difficult for LPs to justify investing with GPs that do not have a valuation process compliant with the MPF.”

Whether many private fund valuations professional become certified is subject to debate; a lot of administration accompanies the regime.

Those that become certified are required to pass a standard assessment, adhere to the MPF, undertake further education and dedicate a minimum number of hours to fair value engagements over a three-year rolling period. They are also subject to a quality control and inspection program and will face disciplinary action if they flout any of the rules.

“The general consensus is that it could be required for professionals completing valuations for public companies. However, unless there is wide adoption, it will probably be a nice to have for all other professionals with an added administrative component that may make adoption too burdensome,” Lindsay Hill, director at tax and auditing firm RSM, told pfm.