FASB compliant

In November, the International Private Equity and Venture Capital Valuation Board issued a statement confirming that changes to its valuation guidelines would allow users “to be consistent with the recent FASB standard on fair value, No. 157.”
The revised guidelines are now available on the IPEV web site, located at www.privateequityvaluation.com. IPEV is an association of 34 private equity trade associations, most prominently the Association Française des Investisseurs en Capital (AFIC), the British Venture Capital Association (BVCA) and the European Private Equity and Venture Capital Association (EVCA), that joined together to formulate a single standard on valuing private equity investments.
The website also contains a version of the IPEV valuation standards that have been highlighted to show where changes were made. Among the more extensive changes is a new section that instructs a valuer on how to prioritize methodologies: “In assessing whether a methodology is appropriate, the Valuer should be biased towards those methodologies that draw heavily on market-based measures of risk and return. Fair Value estimates based entirely on observable market data will be of greater reliability than those based on assumptions.”
“Methodologies utilising discounted cashflows and industry benchmarks should rarely be used in isolation of the market-based measures and then only with extreme caution. These methodologies may be useful as a cross-check of values estimated using the market-based methodologies.”
Another changed section notes that in “situations where Fair Value cannot be reliably measured the Valuer may reasonably conclude that the Fair Value at the previous reporting date remains the best estimate of Fair Value. . .”
At the introduction of the guidelines, IPEV confirms that two separate definitions of the term “fair value” are congruent. The second, and new, definition included in the guidelines is: “Fair Value is the price that would be received for an asset or paid for a liability in a transaction between market participants at the reporting date.” This is congruent, according to IPEV, with: “The Fair Value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.”