"Each country, and each IPO, presents a different valuation situation and user group," says Karin Lusnic, representing the Slovenian Institute of Auditors. "We were not valuing on the same benchmarks currently." Unlike the many real estate appraisers at the Paris IVSC annual meeting, Lusnic began her career in business valuation with KPMG, and she now has her own firm.
Ben Elder, the international director of valuation for RICS in London, agrees. He points to the difference in regulation; Luxumborg, for instance, just endorsed the AIFMD.
Bill Beauclerk, who has worked in real estate valuation in the U.K. and France for 30 years, but who also does select business valuations, sees competition as the biggest issue. The real estate market is dominated by a "cartel" of large real estate firms—CBRE for instance—and valuators are often empaneled by the court system. "I don't know how new people can enter the profession when it's lower cost and more competitive than the comparable to MAI-level valuations in the U.S."
Valuators (mostly real estate) are, in fact, more collaborative in the EU, Beauclerk claims. This is perhaps because individuals move from firm to firm regularly. There is also less litigation and a separation, at least in France, between the "first class" that works with investment-level commercial property and everyone else.
Elder points out that there is no consensus on standards (he represents RICS and wants the RICS "Red Book" to be the common guide, "even if the name of a non-U.K. country is on the front cover"). He recognizes that this approach is not working because whether you're talking to real estate, business, or arts and antiques, everyone always says "we're different."
BV is ahead of the curve because many countries, such as Slovenia, which adapted IVS in 2004, had no other rules when they started. IVS made the most sense. "Whenever you're valuing for financial reporting in Slovenia you have to follow IVS, plus some national practice guides at the first step," said Lucnic. "We still lack an international benchmark for quality work," and it will be hard to defend your adherence to meaningful standards until such a "certification" exists.
Other countries as wide ranging as Holland and Indonesia also have active groups of generally Big Four appraisers working with their respective finance ministries along the lines of the International Valuation Standards from the IVSC in an attempt to create what one attendee from Hong Kong called "a robust valuation ecosystem within the local economies."
A recent Dutch meeting focused, for instance, on the relevance of scenario analysis. The Dutch regulators wanted to know the basis for appraisal reports that discussed ranges from optimistic to pessimistic. The auditors, being conservative, suggested that the low end of the valuation range should carry additional weight.
The Indonesian Ministry of Finance demanded two years ago that a group of Singapore valuators create a certification program in compliance with the IVS. The group is working with Indonesian universities to develop the initial training programs so that the first generation of "certified" appraisers can be initiated in 2016.
The more advanced economies are often working with two sets of standards—the global IVS, which will be updated extensively in 2016, and their own national standards. So, for instance, due to changes in commercial banking and other regulations, the UK updated their valuation standards in April 2015. BV must pay attention to both sets, despite the fact that most of the changes are being driven by real property issues related to commercial lending (in this case both within the UK and at the European Commission).
However, every one agreed that the rules are in flux, and that there's no solid professional review procedure. "We don't speed on the highways because there might be a police car around the corner," said Beauclerk. "There is currently no police car on the valuation highway in the EU."
An IVSC delegate who once worked at the SEC agreed that the U.S. has similar issues. "The pressure was on the auditor to validate the business valuation in the U.S., but there was no pressure on the public company registrant," he said. While this is changing, he felt the U.S. had the same situation: no sign of law enforcement in the future to the "drivers."
Financial reporting provides particular problems for business valuators because few of their professional judgments are reported in financial statements--an obvious red flag for auditors working in any part of the globe. One IVSC Professional Standards Board member with past audit experience complained "disclosures often present a number and none of the work done by the professional, which leads to the natural conclusion that the conclusion is suspect."
Mauro Bini, the Italian finance professor who is now a member of the IVSC Professional Board, described the EU profession as an "end table with two legs." He said there were the beginnings of professional standards, but there was no sign of performance standards.
"End users will not see the value in professionalism now," said Phillippe Jouan, ex-director of the CICBV, who moderated the panel.
An audience participant applauded efforts by FFEE, the French valuation organization, to bring together all disciplines. "At least we're all around the same round table," he said.
Still, the real estate valuation market is controlled by parties who are involved in transactions, and, to some degree, the business valuation market is controlled by the audit firms. An auditor and "user" of appraisals commented that "valuation can't be considered a real profession when the practitioners are also the ones doing the deals." And Greg Forsythe, chair of the IVSC Professional Board and director of valuation services for Deloitte, commented that "we have 2,000 people working on valuations around the globe. The variance in quality is remarkable. We're seeing math errors on the first page, in the worst cases, but even some of the better business valuation work is impossible to audit because the judgment process is not disclosed."