RICS consider adoption of expanded business valuation glossary

BVWire–UKIssue #22-1
January 19, 2021

RICS have been in the news the last few weeks regarding the termination of directors and whistleblowing activities—but they’ve also released a draft of a revised international glossary of business valuation terms. The new International Valuation Glossary—Business Valuation has been developed in collaboration between RICS and various other international valuation professional organizations (ASA and AICPA in the US, TAQEEM in Saudi Arabia, and CBV Institute in Canada). Public comments on the draft are due 31 January.

While the new draft nearly doubles the number of defined terms that appeared in the original version, the new technical definitions and methodologies won’t offer a lot of surprises to business valuation experts.

However, some practitioners we spoke with are worried that RICS’ intent to include these as part of their valuation standards could expose experts to further challenges during litigation or other contested situations. One UK valuation expert said he expects to be asked about why, or why not, he used various methods that are now defined in the new glossary. ‘If you answer “no,” the next question you’ll get is “Why not? It’s in your professional standards.”’

For this reason, it may be better for RICS to promulgate the revised glossary in a ‘nonauthoritative’ form, such as an advisory or practice aid.

Some of the new financial terms defined in the draft include:

  • Backsolve method;
  • Cost savings method;
  • Current value method;
  • Distributor method;
  • Greenfield method;
  • Hybrid method;
  • Investment method;
  • Premium profits method;
  • Summation method; and
  • With and without method.

In addition to new methods, the proposed revised glossary adds technical terms including ‘All Risks Yield,’ ‘Calibration,’ ‘En Bloc Value,’ ‘Evidential Skepticism’ (that differs from ‘Professional Skepticism’ in the document), ‘Notional Market Valuation,’ ‘Ratable Value,’ ‘Self-Skepticism,’ and ‘Sustainability’ (that relates to climate change, corporate responsibility, and other factors).

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