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Is ?Fair Value' Fair To All?

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Abstract

From 2005, publicly traded companies, established in the EU and EEA Member States, must publish consolidated financial statements in conformity with International Financial Reporting Standards (IFRS) as adopted by the European Commission. These new accounting requirements impose significant changes in the valuation reporting of investment and owner-occupied properties as identified in IAS16, IAS17 and IAS40. However particular contentious issues still remain in the interpretation of the valuation standards as now operative within the concepts of Fair Value (FV), Market Value (MV), Existing Use Value (EUV), and Depreciated Replacement (DRC). This paper will analyse current valuation advice emanating from the IVSC and RICS on these issues, dealing with both investment and owner-occupied properties, and identify any uncertainties that may remain to be resolved, particularly as to the possible reflection of existing use in the latter properties. In the case of specialised and other no-market properties, this examination will also take in the implications of the latest advice and research on the application of the DRC method. The authors of this paper have written extensively on the problems of valuing owner occupied properties for financial statements and the proposed convergence of international accounting and valuation standards (1997a, 1997b, 1998a, 1998b, 2000a, 2000b, 2001a, 2001b, 2002a, 2002b, 2003). Accordingly this paper will proceed from its latest analysis of extant comment and guidance from the professional institutions and, drawing on further consultation with advising valuers and property owners including work that they are currently carrying out on behalf of an RICS Working Group, the authors will derive conclusions as to the practicality and usefulness of the IFRS valuation requirements particularly within the context of owner-occupied properties in the UK.

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