A Bridge to Nowhere?
In June The Appraisal Foundation and the International Valuation Standards Council (IVSC) published A Bridge from USPAP to IVS. This is a guide primarily aimed at valuers and appraisers who are obliged to follow USPAP on the additional steps that need to be taken to ensure that the valuation is also compliant with the current IVSs.
This is an excellent document which illustrates that there are more similarities than differences between the two sets of standards, a point made in my earlier blog article A Distinction Without a Difference. This is testament to the way in which the two sets of standards have influenced each other in their evolution, particularly over the last decade. Yes, there are very obvious differences, but these stem from differences in the scope and remit of the standards, for example some of the more prescriptive detail in USPAP is specific to USA law and practice and would be inappropriate in a set of global standards as it could conflict with law and practice in other jurisdictions. It will always be the case that a set of national standards can, and in many cases should, contain more specific requirements than can appear in a set of standards intended for global application. The latter have to focus on principles rather than prescribing exactly how those principles have to be applied.
Unfortunately, this very useful document may be about to be rendered redundant unless the IVSC Standards Board reverses some of the radical changes proposed to the next edition of the IVSs. If confirmed, many of the proposals will fundamentally alter the IVSs in a way which will significantly increase the differences with USPAP. Here are some examples:
The proposal that all the contents of the revised IVSs should be deemed mandatory. At first sight this might not seem to be different from USPAP, as in the latter the word “standards” is reserved for mandatory rules. However, “standards” in both the current and proposed IVSs is used more broadly to refer to not just rules but also supporting information that is clearly guidance or in the nature of guidance, for example because conditional language is used or non-exclusive examples are provided. Even if one sets aside the sheer illogicality of describing material that is clearly illustrative or explanatory as mandatory, and the obvious difficulties of interpretation and application this will cause, the straightforward comparison that can be made between the mandatory Requirements in the current IVSs and the Standard Rules in USPAP will no longer be possible.
The proposal to introduce a new “mandatory” standard into the IVSs for bases of value. In the current IVSs three different bases of value are defined to illustrate the three different types of value that are commonly needed, but there is no compulsion to use these and it is explicitly recognised that other definitions may be required depending on the purpose for which the valuation is required. USPAP similarly requires the type and definition of value to be stated along with the source of the definition, but does not require the use of any particular definition. If the IVSs introduce mandatory bases it will introduce a degree of prescription which many users of USPAP will find inappropriate and difficult to comply with.
The proposal to introduce a new mandatory standard into the IVS requiring the use of particular valuation approaches and methods. No other valuation standards in common use, including USPAP, attempt to impose mandatory approaches and methods. If approved this would represent a further obstacle to users of USPAP being able to produce an IVS compliant report. In the current IVSs, the IVS Framework is a non-mandatory section of the standards which contains explanatory material aimed at facilitating consistent application of the mandatory Requirements in the standards. It includes high level explanations of the common valuation approaches in order to promote consistent understanding of these around the world but there is no suggestion that the use of these is mandatory in any given situation.
The Bridge document highlights the disclosure of “material uncertainty” as something that needs to be given specific consideration if an appraiser wishes make a USPAP compliant report also compliant with the IVSs. The draft proposes removal of the recently developed guidance referenced in the Bridge document on identifying material uncertainty and acceptable ways in which this can be disclosed, thus rendering this section redundant and with it useful guidance to USPAP users.
While the Bridge document clearly relates to the current 2013 edition of the IVSs, for the IVSC to put its name to this publication within weeks of issuing drafts that propose changes that would render the advice it provides redundant is, at the very least, unfortunate. It certainly sends contradictory messages about the IVSC's policy, and in particular whether it still believes convergence with other standards, and in particular USPAP, is a priority.
The consultation on the proposed changes to the IVSs is still open until the end of August, so if you agree with me that the priority should be reconciling the remaining differences with USPAP rather than increasing them, there is still time to tell the IVSC what you think.