IVSC tackles valuation uncertainty

BVWireIssue #122-3
November 28, 2012

The International Valuation Standards Council (IVSC) has just released an exposure draft titled “Valuation Uncertainty.” The proposed guidance examines how analysts can identify, explain, and disclose valuation uncertainty “in a way that is informative to those relying on valuations,” says an IVSC release.

The exposure draft, in part, answers “calls from the G20 and financial regulators around the world for improved standards of transparency and disclosure of valuation uncertainty factors.” Too many institutions were placing “wholly inappropriate confidence in valuations in the period leading up to the 2008 financial crisis,” the IVSC release says, and “the sudden evaporation of that confidence was a major contributor to the subsequent crash.” Further, the exposure draft:

makes a clear distinction between market risk, which is both generally understood and acknowledged by investors and reflected in the pricing, and uncertainty caused by disruption or dislocation in the market place. It also gives guidance to valuation providers on the principles that should be observed in measuring and disclosing uncertainty.

Comments on the draft are due by Feb. 13, 2013.

Please let us know if you have any comments about this article or enhancements you would like to see.