The largely unregulated valuation profession could use a shake-up, in the view of some who rely on valuations to achieve regulatory compliance.
PwC recently published two white papers calling on the valuation profession to up their game in terms of unifying themselves under a single professional framework and improving their standards. The financial reporting world needs greater quality and consistency, the Big 4 firms says, as financial reporting grows increasingly reliant on valuations to help prepare and audit financial statements steeped in fair value measurements. One paper focuses on the need for the valuation profession to unify itself under a single professional infrastructure, while the other addresses the need for better valuation standards.
The message is consistent with one delivered earlier by Paul Beswick, now chief accountant at the Securities and Exchange Commission. “The fragmented nature of the profession creates an environment where expectation gaps can exist between valuators, management, and auditors, as well as standard setters and regulators,” he said at a 2011 accounting conference. The SEC and the Public Company Accounting Oversight Board both have called on preparers and auditors to pay closer attention to the valuations they are relying on and not simply accept them at face value.
“Historically, the valuation profession hasn't been front and center in capital markets,” says John Glynn, U.S. valuation services leader for PwC. “The accounting model didn't have as many pieces measured at fair value as we have today. Some of the questions about the professional infrastructure that didn't matter previously have become more apparent.”
The valuation profession is governed by a number of different professional organizations, PwC says, each with different credentialing and membership requirements and none of them specific to the needs of capital markets. “To maintain its professional standing in an increasingly rigorous environment and promote greater confidence in its work, the valuation profession needs to address questions about the quality, consistency, and reliability of its valuations, particularly those performed for financial reporting purposes,” PwC writes. “A key element to successfully addressing such questions is having a leading global standard setter that issues technical valuation standards governing the performance of valuations for financial reporting purposes.”
The answer is not necessarily a new regulatory channel, says Glynn. “We need to give the valuation profession a way to build a self-regulatory mechanism,” he says. “One or or more of the professional organizations need to agree to build something that is focused on building a high-quality infrastructure to support the valuation professionals that are working in public capital markets, particularly around financial reporting.” That should include education requirements, accreditations, certifications, as well as professional standards and performance standards developed under a robust system of due process, he says. The International Valuations Standards Council is showing potential to become a leader in driving the profession to a unified, global valuation approach, Glynn says.