IVSC seeks guidance on liability valuations

The International Valuation Standards Council (IVSC) has launched a project to help shape best practices and provide standards for valuing liabilities on the books.  

The IVSC, the private-sector body responsible for crafting and promoting international valuation standards, believes that miscalculating the value of an organization’s liabilities can be just as harmful as incorrect asset values, which is often the sole focus of valuation standards.

The IVSC did note that the International Accounting Standards Board’s IFRS 13 Fair Value Measurements specifically includes liabilities, but stipulates that specific assumptions be made that may or may not be appropriate when establishing the value of a liability for purposes other than financial reporting.

“People often think that calculating the value of a liability is the same as calculating the value of an asset – just with plus and minus reversed. Clearly the reality is often a lot more complicated, especially when liabilities will not fall due until a date in the future,” said vice chairman of the IVSC Valuation Standards Board, Frank Bollman, in a statement.

As part of the project the IVSC have released a discussion paper setting out issues identified in its own research into the topic, and soliciting views on how these issues can be overcome.

“It is clear that this is a complex subject and one that is not well understood, even by some experienced valuation experts. Therefore, we are keen to identify a consensus on how the value of different types of liability can be best determined and reported,” added Bollman.

Comments on the discussion paper, which can be downloaded on the IVSC’s website, will be accepted until the end of April. They can be sent to commentletter@ivsc.org.

Liabilities are not the only challenging aspect of valuations, a key area of focus for any well-managed private equity firm. That's why in our March edition we'll examine GPs' valuation strategies and methodologies, including a look into what LPs expect in their quarterly reports.