Valuation Standards and the Reform of the Capital Market

1
Valuation Standards and the Reform of the
Capital Market

• By Dennis Grubb
• Senior Capital Markets Adviser

2
FMR Project

• The project is implemented on behalf of USAID
  under technical assistance contract with Deloitte
  Touche Emerging Markets (USA)
• The beneficiary institutions include
• CNVM
• Bucharest Stock Exchange, Rasdaq Electronic
  Exchange
• Investment Funds Association
• Senate Sub-Committee on Capital Markets
• Romanian Shareholders Association
• APAPS
• Others
• The projects work will expand and strengthen the
  financial sector as well as support greater
  transparency and accountability in public and
  private institutions

3
The USAID Romanias strategic objective

• To create a FINANCIAL SECTOR that is
• Competitive
• Efficient
• Transparent
• Market responsive
• High level of integrity

4
FMRs mission is to ensure that

• Issuers disclose sufficient and accurate
  information for investors
• The value of an issuers assets must be included
  so that investors can determine the appropriate
  investment price

5
Past versus Present

• In the old days
• The asset value shown in the financial statements
  were mainly based on a historical cost basis

• In fact
• The more relevant information is how much is the
  asset worth today, not its purchase price from
  some years ago

6
The concept of current value of assets

• The concept of current value of assets became
  more apparent in the newer accounting standards
  including the standard on impairment of assets
• Therefore
• Appraisers are increasingly important and closely
  linked to the financial markets, accountants and
  securities regulators

7
The concept of fair value

• To record the historical asset purchase price is
  easy

• But to estimate or determine its fair value or
  value for future use is difficult and requires
  comprehensive skills and knowledge

8
Appraisal Methodology

• THE PROCESS for determining asset value must be
  credible, justifiable and transparent
• This is more important than several appraisers
  reaching a single asset price

9
International Valuation Standards

• IVS has enhanced its reputation and credibility
  by continually issuing new and improved ethics,
  competency, practical and disclosure standards
• Enforcement of these standards is equally
  important
• Without sufficient enforcement, the written rules
  are almost meaningless