IVSC consults on valuation of investment property and public sector assets

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03 Dec 2012

The International Valuation Standards Council (IVSC) has issued two due process documents seeking feedback on valuation topics. A discussion paper has been released on the valuation of investment property (particularly in meeting the requirements of IAS 40 'Investment Property'), and an exposure draft on the valuation of specialised assets used by public sector entities for service delivery.

Investment property

The Discussion Paper Investment Property seeks views on the valuation of investment property, both in the context of IAS 40 Investment Property and more broadly.

The IVSC has promulgated two standards that relate to investment property, namely IVS 233 Investment Property under Construction and IVS 230 Real Property Interests.

IVS 233 was made in response to constituent concerns about inappropriate techniques being adopted following the amendment to IAS 40 made in 2008 (arising from the 2006-2008 cycle of annual improvements) to require investment property under construction to be measured at fair value rather than cost, provided fair value can be reliably determined.  Some constituents argue that IVS 230 obviates the need for a separate IVS on investment property.

The Discussion Paper seeks views on issues such as the following:

  • Whether the definition of 'investment property' used in IVS 233 should remain consistent with that used in IAS 40, or whether the definition may not be optimal for non-financial reporting purposes such as transactions or asset management, as it is too specific to accounting rather than valuation purposes
  • How certain items attached to or associated with a property should be reflected in valuations of investment property, particularly whether, and if so when, the value of an intangible asset (such as rights) should be included in the value of a property interest
  • How any additional guidance should be promulgated by the IVSC, e.g. amendments to IVS 233 and/or IVS 230, the issuance of guidance in the form of a Techincal Information Paper (TIP), or in some other manner
  • Whether additional guidance is needed on applying the 'highest and best use' concept in the IVS Framework and IFRS 13 to investment property
  • Whether guidance should be given in areas where valuation problems arise in relation to investment properties, e.g. no or limited sales transactions, completed buildings remaining unleased, and the construction of discount rates
  • Whether the IVSC should attempt to set benchmarks that indicate whether inputs and valuations should include or exclude different types of tax or other costs
  • Whether a valuation report for investment property should state which level of the 'fair value hierarchy' in IFRS 13 the valuation of an investment property be placed. Furthermore, if the inputs fall within Level 3, whether the sensitivity analysis required by IFRS 13 should also be provided in the valuation report
  • Whether the IVSC should provide guidance on when it might not be possible to reliably determine the value of an investment property.

Comments on the paper close on 1 March 2013.

Click for (links to IVSC website):

Specialised public service assets

Specialised public service assets include buildings, structures, equipment and land used to provide transport, utilities and social, cultural and recreational services.

The IVSC's exposure draft Valuations of Specialised Public Service Assets responds to concerns that different approaches are being adopted by public sector entities for the valuation of specialised assets used for service delivery.  Issues arising include whether valuations should reflect the value the asset gives to society, taking sub-optimal uses in to account, reproduction or replacement cost as a basis for valuation, and how obsolescence should be reflected.

The exposure draft proposes a new Technical Information Paper (TIP) to provide guidance on these issues.  Topics discussed in the exposure draft include:

  • Whether the status of the owner of an asset as for-profit or not-for-profit should impact its valuation
  • The distinction between 'market value' (which should give the same outcome as 'fair value' under IFRS 13) and 'investment value' (an owner-specific value which may include measures relating to the public benefit created by or accruing to the asset)
  • Distinguishing between measuring the value of the asset and measuring the social value, ie the impact of that asset on either other assets or the wider community
  • Whether or not specialised public service assets such as roads, town squares, footpaths, public parks and gardens, informal recreational areas, etc are assets for which public users make no direct payment for access or us can be reliably measured
  • Proposing four principal categories of specialised public service assets, and providing examples of types of asset that fall within each of these categories.

The exposure draft also notes that the IVSC is also aware of a project being undertaken by the International Public Sector Accounting Standards Board (IPSASB) to introduce a Conceptual Framework which includes a review of measurement and valuation concepts for publicly owned assets.  However, given the long time frames involved in finalising the IPSASB's project, the IVSC has decided to propose guidance on the valuation of specialised assets.

Comments on the exposure draft close on 1 March 2013.  Click for (links to the IVSC website):

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