Page 1 of 4Our Ref.: C/FRSCSent electronically via email29 July 2016International Valuation Standards Council1 King StreetLondonEC2V 8AUUnited KingdomDear Sir/Madam,Exposure Drafts on IVS 104 Bases of Value,IVS 105 Valuation Approaches and Methods and IVS 210 Intangible AssetsThe Hong Kong Institute of Certified Public Accountants is the only body authorised by lawto set and promulgate standards in Hong Kong relating to financial reporting, auditing, andethics for professional accountants. We welcome the International Valuation StandardsCouncil's (IVSC) efforts in expanding the depth of its standards, and ensuring that theInternational Valuation Standards (IVS) provide clarity and market efficiency and are fit forpurpose.The role of valuation is getting more prominent in financial reporting as more items arerequired or can be measured at fair value under IFRS/HKFRS. In Hong Kong, noregulatory body sets valuation standards and, while there are no requirements forvaluation experts in Hong Kong to comply with the IVS set by the IVSC, we are aware thatsome valuers use IVS as a guide. We are therefore commenting on these exposure draftsin light of the impact they may have on financial reporting.Our comments have been developed through deliberation with our advisory members fromvaluation practices and academia, and our Financial Reporting Standards Committee.Given the prevalence of performing valuation for financial reporting under IFRS, our mainconcerns are from the perspective of ensuring the guidance between IFRS and IVS, whererelevant, are consistent. One inconsistency we note relates to Exposure Draft on IVS 105Valuation Approaches and Methods, in particular paragraphs 10.3 and 10.4. Theseparagraphs may not be consistent with paragraph 63 of IFRS 13 Fair Value Measurement,which states the following:
In some cases a single valuation technique will be appropriate (eg when valuing anasset or a liability using quoted prices in an active market for identical assets orliabilities). In other cases, multiple valuation techniques will be appropriate (eg thatmight be the case when valuing a cash-generating unit). If multiple valuationtechniques are used to measure fair value, the results (ie respective indications of fairvalue) shall be evaluated considering the reasonableness of the range of valuesindicated by those results. A fair value measurement is the point within that range thatis most representative of fair value in the circumstances.If the IVSC keeps paragraphs 10.3 and 10.4 of the proposed IVS 105, we urge that theIVSC explains under what circumstance would valuers only use one valuation method inits assignments.Page 2 of 4We also consider that it would be useful to add to IVS 105 and/or other related standards areminder that IFRS and other reporting standards, e.g. USGAAP, have specificrequirements or guidance relating to valuation. Valuers should therefore be mindful andapply the relevant literature as appropriate.In terms of disclosures, as a principle, we consider that valuation experts should berequired to provide in their reports to clients the rationale for using a particularmethodology, inputs, assumptions and details of comparable transactions used in thevaluation model. We therefore urge the IVSC to require such a disclosure as anover-arching principle.We also have other comments that seek to clarify certain requirements and request formore guidance in IVS 104 Bases of Value, IVS 105 Valuation Approaches and Methodsand IVS 210 Intangible Assets. These comments are explained in detail in the Appendix.The HKICPA is aware of the memorandum of understanding between the IVSC and theInternational Accounting Standards Board (IASB). We therefore support members andstaff of both IVSC and IASB to actively monitor and provide input on the development orimprovement of standards that are set by respective boards, where they relate tovaluation.If you have any questions regarding the matters raised in this letter, please contact me orAnthonyWong,AssociateDirectoroftheStandardSettingDepartment(anthonylwwong@hkicpa.org.hk).Yours sincerely,Christina NgDirector, Standard Setting DepartmentEnclcc IASBAppendixPage 3 of 4Detailed comments on IVSC EDsThe comments in this Appendix seek to clarify certain requirements and request for moreguidance in IVS 104 Bases of Value, IVS 105 Valuation Approaches and Methods and IVS210 Intangible Assets. Other pertinent comments are explained in the cover letter of thisAppendix.Exposure Draft on IVS 104 Bases of ValueBases of valueThe proposed IVS 104 provides the definition of 'basis of value' without discussing whenthose bases of value could be used. It would be helpful if the IVSC provides more guidancesuch as factors or examples for valuers to decide which basis of value to use for differenttypes of valuation assignments.Highest and best useParagraph 150.1 of the proposed IVS 104 states that, "Highest and best use is the use thatwould produce the highest value for an asset, liability or a group of assets and/or liabilities,regardless of the actual current use.". The paragraph defines the concept of 'highest andbest use' but the exposure draft does not distinguish the use of this concept betweenfinancial and non-financial assets. Paragraph BC63 of IFRS 13 makes such a distinction.We therefore suggest that the IVSC specifies when and how 'highest and best use' shouldbe applied. For example, it is often used in the valuation of land and buildings. It would alsobe useful if the IVSC acknowledges in IVS 104 that IFRS 13 applies 'highest and best use'to non-financial assets that are fair valued only.Transaction costsWe consider that there is a lack of guidance on the use of transaction costs in valuation andtherefore suggest that IVS 104 includes the following discussion:
(a) Under what circumstance should fair value be adjusted for transaction costs. Forexample, should fair value incorporate transaction costs if it is a characteristic of theasset, like in the case of real estate valuation from a buyer's perspective.(b) How transaction costs should be considered when determining highest and best use,the market for a transaction, and the likely market participants.Exposure Draft on IVS 105 Valuation Approaches and MethodsMarket approachWe request that the IVSC provides more guidance or examples that explain when/how thecircumstances identified in paragraph 20.2 of IVS 105 would lead to the use of marketapproach in practice. In particular, the IVSC should discuss the thought process for makingthe decision to use the market approach under the circumstances outlined in paragraphs
20.2(a) - (c) of IVS 105.Paragraph 30.13(c) mentions 'thinly-traded' but we consider that this text is not well definedin accounting and valuation literature nor in practice. We therefore suggest that paragraph
30.13(c) says 'Securities that trade in an active market provide more meaningful evidence'.Discounts/PremiumsParagraph 30.18(c) of IVS 105 explicitly states that blockage discounts are prohibited inIFRS 13. We suggest that this statement be moved to paragraph 30.18 (main paragraph) tomake it more prominent that certain adjustments are not allowed for particular bases ofvalue. This can also avoid the impression that paragraphs 30.18(a) and 30.18(b) of IVS 105have no differences from the fair value measurement guidance in IFRS 13. Pointing suchAppendixPage 4 of 4differences out selectively in paragraph 30.18(c) creates the appearance that all otherinstances do not conflict with IFRS 13.We consider that the current grouping of the guidance about discounts/premiums under'Other Market Approach Considerations' is misleading as discounts/premiums should alsobe considered in the income approach. These guidance should not be grouped under aparticular approach and should be relocated under a more general heading.Income approachWe consider that paragraph 40.5 of IVS 105 is mainly a theoretical statement and is not asrelevant in practice. In reality, investors may end up with concentrated or undiversified risksfor commercial reasons. We therefore suggest that IVSC deletes this paragraph or providemore context on the objective for including this paragraph.We also consider that a practical example would be useful to illustrate the application ofparagraph 50.5(c) of IVS 105.We note that paragraph 50.7 of IVS 105 defines 'functional currency' while paragraph 9 ofIAS 21 The Effects of Changes in Foreign Exchange Rates also defines this term. Wesuggest that the IVSC considers how best to prevent any confusion on the use of this termfor valuation and accounting purposes.Cost approachWe consider that some high level factors on when to include the direct/indirect costsmentioned in paragraph 80.11 of IVS 105 is necessary as some of the costs quoted are notrelevant for certain types of valuations.Discount rateWe note that there is little discussion in IVS 105 on the application and determination ofdiscount rates and therefore request that the IVSC provides further guidance:
(a) in paragraph 60.10 by including:
(i) a comparison of common methods for developing a discount rate and considerationfor selecting the appropriate method;
(ii) illustrations of how a discount rate could be developed from the list of commonmethods;
(iii) examples to explain the consideration factors; and(b) in paragraph 50.6 by including the methods of adjusting pre-tax and post-tax rates, andconsideration factors for choosing the appropriate method.We consider that it is necessary to clarify that CAPM, WACC and build-up method aremethods for developing a discount rate while IRR and WARA are methods for determiningthe reasonableness of a discount rate in paragraph 60.10 of IVS 105.Exposure Draft on IVS 210 Intangible AssetsWe suggest that the IVSC reorders the sequence of discussion on the valuation approachesby order of hierarchy, that is, discuss the market approach before the income approach toprevent any confusion that the income approach is the preferred approach in valuing theintangible asset.In addition, we suggest that the IVSC discusses 'opportunity cost' (paragraph 140.3(d) ofIVS 210) as part of the 'profit margin' discussion (paragraph 140.3(c) of IVS 210), as, inpractice, opportunity cost is a factor of profit margin, not an alternative to profit margin.~ End ~
Exposure Drafts on IVS 104 Bases of Value, IVS 105 Valuation Approaches and Methods and IVS 210 Intangible Assets issued by International Valuation Standards Council
下载原件Page 1 of 4Our Ref.: C/FRSCSent electronically via email29 July 2016International Valuation Standards Council1 King StreetLondonEC2V 8AUUnited KingdomDear Sir/Madam,Exposure Drafts on IVS 104 Bases of Value,IVS 105 Valuation Approaches and Methods and IVS 210 Intangible AssetsThe Hong Kong Institute of Certified Public Accountants is the only body authorised by lawto set and promulgate standards in Hong Kong relating to financial reporting, auditing, andethics for professional accountants. We welcome the International Valuation StandardsCouncil's (IVSC) efforts in expanding the depth of its standards, and ensuring that theInternational Valuation Standards (IVS) provide clarity and market efficiency and are fit forpurpose.The role of valuation is getting more prominent in financial reporting as more items arerequired or can be measured at fair value under IFRS/HKFRS. In Hong Kong, noregulatory body sets valuation standards and, while there are no requirements forvaluation experts in Hong Kong to comply with the IVS set by the IVSC, we are aware thatsome valuers use IVS as a guide. We are therefore commenting on these exposure draftsin light of the impact they may have on financial reporting.Our comments have been developed through deliberation with our advisory members fromvaluation practices and academia, and our Financial Reporting Standards Committee.Given the prevalence of performing valuation for financial reporting under IFRS, our mainconcerns are from the perspective of ensuring the guidance between IFRS and IVS, whererelevant, are consistent. One inconsistency we note relates to Exposure Draft on IVS 105Valuation Approaches and Methods, in particular paragraphs 10.3 and 10.4. Theseparagraphs may not be consistent with paragraph 63 of IFRS 13 Fair Value Measurement,which states the following:
In some cases a single valuation technique will be appropriate (eg when valuing anasset or a liability using quoted prices in an active market for identical assets orliabilities). In other cases, multiple valuation techniques will be appropriate (eg thatmight be the case when valuing a cash-generating unit). If multiple valuationtechniques are used to measure fair value, the results (ie respective indications of fairvalue) shall be evaluated considering the reasonableness of the range of valuesindicated by those results. A fair value measurement is the point within that range thatis most representative of fair value in the circumstances.If the IVSC keeps paragraphs 10.3 and 10.4 of the proposed IVS 105, we urge that theIVSC explains under what circumstance would valuers only use one valuation method inits assignments.Page 2 of 4We also consider that it would be useful to add to IVS 105 and/or other related standards areminder that IFRS and other reporting standards, e.g. USGAAP, have specificrequirements or guidance relating to valuation. Valuers should therefore be mindful andapply the relevant literature as appropriate.In terms of disclosures, as a principle, we consider that valuation experts should berequired to provide in their reports to clients the rationale for using a particularmethodology, inputs, assumptions and details of comparable transactions used in thevaluation model. We therefore urge the IVSC to require such a disclosure as anover-arching principle.We also have other comments that seek to clarify certain requirements and request formore guidance in IVS 104 Bases of Value, IVS 105 Valuation Approaches and Methodsand IVS 210 Intangible Assets. These comments are explained in detail in the Appendix.The HKICPA is aware of the memorandum of understanding between the IVSC and theInternational Accounting Standards Board (IASB). We therefore support members andstaff of both IVSC and IASB to actively monitor and provide input on the development orimprovement of standards that are set by respective boards, where they relate tovaluation.If you have any questions regarding the matters raised in this letter, please contact me orAnthonyWong,AssociateDirectoroftheStandardSettingDepartment(anthonylwwong@hkicpa.org.hk).Yours sincerely,Christina NgDirector, Standard Setting DepartmentEnclcc IASBAppendixPage 3 of 4Detailed comments on IVSC EDsThe comments in this Appendix seek to clarify certain requirements and request for moreguidance in IVS 104 Bases of Value, IVS 105 Valuation Approaches and Methods and IVS210 Intangible Assets. Other pertinent comments are explained in the cover letter of thisAppendix.Exposure Draft on IVS 104 Bases of ValueBases of valueThe proposed IVS 104 provides the definition of 'basis of value' without discussing whenthose bases of value could be used. It would be helpful if the IVSC provides more guidancesuch as factors or examples for valuers to decide which basis of value to use for differenttypes of valuation assignments.Highest and best useParagraph 150.1 of the proposed IVS 104 states that, "Highest and best use is the use thatwould produce the highest value for an asset, liability or a group of assets and/or liabilities,regardless of the actual current use.". The paragraph defines the concept of 'highest andbest use' but the exposure draft does not distinguish the use of this concept betweenfinancial and non-financial assets. Paragraph BC63 of IFRS 13 makes such a distinction.We therefore suggest that the IVSC specifies when and how 'highest and best use' shouldbe applied. For example, it is often used in the valuation of land and buildings. It would alsobe useful if the IVSC acknowledges in IVS 104 that IFRS 13 applies 'highest and best use'to non-financial assets that are fair valued only.Transaction costsWe consider that there is a lack of guidance on the use of transaction costs in valuation andtherefore suggest that IVS 104 includes the following discussion:
(a) Under what circumstance should fair value be adjusted for transaction costs. Forexample, should fair value incorporate transaction costs if it is a characteristic of theasset, like in the case of real estate valuation from a buyer's perspective.(b) How transaction costs should be considered when determining highest and best use,the market for a transaction, and the likely market participants.Exposure Draft on IVS 105 Valuation Approaches and MethodsMarket approachWe request that the IVSC provides more guidance or examples that explain when/how thecircumstances identified in paragraph 20.2 of IVS 105 would lead to the use of marketapproach in practice. In particular, the IVSC should discuss the thought process for makingthe decision to use the market approach under the circumstances outlined in paragraphs
20.2(a) - (c) of IVS 105.Paragraph 30.13(c) mentions 'thinly-traded' but we consider that this text is not well definedin accounting and valuation literature nor in practice. We therefore suggest that paragraph
30.13(c) says 'Securities that trade in an active market provide more meaningful evidence'.Discounts/PremiumsParagraph 30.18(c) of IVS 105 explicitly states that blockage discounts are prohibited inIFRS 13. We suggest that this statement be moved to paragraph 30.18 (main paragraph) tomake it more prominent that certain adjustments are not allowed for particular bases ofvalue. This can also avoid the impression that paragraphs 30.18(a) and 30.18(b) of IVS 105have no differences from the fair value measurement guidance in IFRS 13. Pointing suchAppendixPage 4 of 4differences out selectively in paragraph 30.18(c) creates the appearance that all otherinstances do not conflict with IFRS 13.We consider that the current grouping of the guidance about discounts/premiums under'Other Market Approach Considerations' is misleading as discounts/premiums should alsobe considered in the income approach. These guidance should not be grouped under aparticular approach and should be relocated under a more general heading.Income approachWe consider that paragraph 40.5 of IVS 105 is mainly a theoretical statement and is not asrelevant in practice. In reality, investors may end up with concentrated or undiversified risksfor commercial reasons. We therefore suggest that IVSC deletes this paragraph or providemore context on the objective for including this paragraph.We also consider that a practical example would be useful to illustrate the application ofparagraph 50.5(c) of IVS 105.We note that paragraph 50.7 of IVS 105 defines 'functional currency' while paragraph 9 ofIAS 21 The Effects of Changes in Foreign Exchange Rates also defines this term. Wesuggest that the IVSC considers how best to prevent any confusion on the use of this termfor valuation and accounting purposes.Cost approachWe consider that some high level factors on when to include the direct/indirect costsmentioned in paragraph 80.11 of IVS 105 is necessary as some of the costs quoted are notrelevant for certain types of valuations.Discount rateWe note that there is little discussion in IVS 105 on the application and determination ofdiscount rates and therefore request that the IVSC provides further guidance:
(a) in paragraph 60.10 by including:
(i) a comparison of common methods for developing a discount rate and considerationfor selecting the appropriate method;
(ii) illustrations of how a discount rate could be developed from the list of commonmethods;
(iii) examples to explain the consideration factors; and(b) in paragraph 50.6 by including the methods of adjusting pre-tax and post-tax rates, andconsideration factors for choosing the appropriate method.We consider that it is necessary to clarify that CAPM, WACC and build-up method aremethods for developing a discount rate while IRR and WARA are methods for determiningthe reasonableness of a discount rate in paragraph 60.10 of IVS 105.Exposure Draft on IVS 210 Intangible AssetsWe suggest that the IVSC reorders the sequence of discussion on the valuation approachesby order of hierarchy, that is, discuss the market approach before the income approach toprevent any confusion that the income approach is the preferred approach in valuing theintangible asset.In addition, we suggest that the IVSC discusses 'opportunity cost' (paragraph 140.3(d) ofIVS 210) as part of the 'profit margin' discussion (paragraph 140.3(c) of IVS 210), as, inpractice, opportunity cost is a factor of profit margin, not an alternative to profit margin.~ End ~