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Changes to CUSPAP 2010 and IVS/IFRS

Changes to CUSPAP 2010 and IVS/IFRS. Presented by: Brian Varner AACI. Agenda. CUSPAP 2010 Intent CUSPAP 2010 Organization - Rules, Comments and Practice Notes - Ethics, Appraisal, Review and Consulting Changes to CUSPAP 2010 - Section 6.3 International Valuation Standards “IVS”

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Changes to CUSPAP 2010 and IVS/IFRS

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  1. Changes to CUSPAP 2010 and IVS/IFRS Presented by: Brian Varner AACI AIC Conference 2010 Victoria, BC

  2. Agenda CUSPAP 2010 Intent CUSPAP 2010 Organization - Rules, Comments and Practice Notes - Ethics, Appraisal, Review and Consulting Changes to CUSPAP 2010 - Section 6.3 International Valuation Standards “IVS” - Section 14 Changes from 2008 Exam AIC Conference 2010 Victoria, BC

  3. Standards Intent 2010 Canadian Uniform Standards of Professional Appraisal Practice “The Standards”. Standards are typically updated every 2 years. The intent of these standards is to promote and maintain a high level of public trust in professional appraisal practice by establishing requirements for appraisal, review and consulting assignments. AIC Conference 2010 Victoria, BC

  4. Comments Rules Practice Notes Standards Organization Standards are organized in four sets: • Ethics Standards • Appraisal Standards • Review Standards • Consulting Standards They are arranged in three tiers or levels: • Rules: provide minimum performance Standards, based on accepted appraisal practice; their application is compulsory • Comments: clarify, interpret, explain and elaborate on the Rules; their application is also compulsory • Practice Notes: offer advice, examples and resolutions; their application is not compulsory Continued on next slide AIC Conference 2010 Victoria, BC

  5. Standards Organization – Rules • The First tier, Rules are simply stated, in about a page • Are based on accepted appraisal practice • Are the minimum compulsory performance standards and principles for ethical conduct and as necessary for appraising, reviewing or consulting assignments to provide a credible result • May necessitate a few changes in the future AIC Conference 2010 Victoria, BC

  6. Standards Organization – Comments • The Second tier, Comments clarify, interpret, explain and elaborate on the Rules • Are an integral part of the Standards • Are compulsory, with the same force and effect as the Rule they explain • May necessitate a few changes in the future AIC Conference 2010 Victoria, BC

  7. Standards Organization – Practice Notes • The Third tier, Practice Notes explain potential application of a particular standard • Promote discussion and provide leadership to appraisers in understanding how to comply with Standards • Are not binding • Provide a convenient resource for everyday application • Can apply to more than one standard • Will change as the need arises AIC Conference 2010 Victoria, BC

  8. Standards Organization- Summary • No change in format (set up) for 2010 CUSPAP • Changes relative to content only 1. IFRS and IVS 2. General items AIC Conference 2010 Victoria, BC

  9. What is IFRS? • International Financial Reporting Standards (IFRS) are a single set of globally accepted high quality accounting standards. • They are issued by the International Accounting Standards Board (IASB), in London, UK. • IFRS will replace Generally Accepted Accounting Principles (GAAP) in Canada, effective January 1, 2011. AIC Conference 2010 Victoria, BC

  10. Impact of IFRS in Canada • IFRS places Canada with more than 100 countries. • Provides transparent information within financial statements. • IFRS will initially apply to publicly accountable enterprises, not private companies or government entities. Private entities have the option of adopting IFRS. • Also requires comparative 2010 figures. • First time adopters may report assets based on fair value rather than historic cost (see next slide). AIC Conference 2010 Victoria, BC

  11. Fair Value Fair Value is an accounting concept and defined in IFRS as - “the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.” Where Market Value of an asset can be established, this value will equate to Fair Value. AIC Conference 2010 Victoria, BC

  12. Impact of IFRS on AIC • WHEREAS the AIC Board of Directors has recognized the need for valuation standards that address emerging valuation requirements (International Financial Reporting Standards - IFRS) and diversification of the scope of work available to AIC members…... • BE IT RESOLVED that the AIC adopt International Reporting Standards “IVS” as their professional standard in sufficient time for full compliance with IFRS by January 1, 2010 AIC Conference 2010 Victoria, BC

  13. Impact of IFRS and IVS on AIC Members • IVS Sub-Committee determined that CUSPAP will be compliant with IVS (eight edition) by including certain requirements (NEW Appraisal Standard-Rules 6.3) – more later. • As only publicly accountable entities must switch to IFRS, many AIC clients are not impacted. • If AIC members are completing assignments under IFRS, must conform to applicable CUSPAP 2010 requirements. AIC Conference 2010 Victoria, BC

  14. International Valuation Standards “IVS” AIC Conference 2010 Victoria, BC

  15. IVS - Contents • Introduction • Concepts Fundamental to Generally Accepted Valuation Principles (GAVP) • Code of Conduct • Property Types • International Valuation Standards* • International Valuation Applications* • Guidance Notes* * all mandatory AIC Conference 2010 Victoria, BC

  16. IVS - GAVP • Land and Property Concepts • Real Estate, Property and Asset Concepts* • Price, Cost and Market Value • Highest and Best Use • Utility • Valuation Approaches * specific definitions of current, non-current assets, depreciation. Terminology differs somewhat from terms more common to Valuers AIC Conference 2010 Victoria, BC

  17. IVS – Code of Conduct • Ethics • Competence • Disclosure • Reporting of Values (minimum content) AIC Conference 2010 Victoria, BC

  18. IVS - Property Types • Real Property • Personal Property • Business • Financial Interests AIC Conference 2010 Victoria, BC

  19. IVS - Standards • Market Value Basis of Valuation IVS-1 • Bases Other Than Market Value IVS-2 • Valuation Reporting IVS-3 AIC Conference 2010 Victoria, BC

  20. IVS - Applications • Valuation for Financial Reporting • Valuation for Secured Lending Purposes • Valuation of Public Sector Assets for Financial Reporting AIC Conference 2010 Victoria, BC

  21. IVS – Guidance Notes AIC Conference 2010 Victoria, BC

  22. CUSPAP 2010 Appraisal Standard Rules - IVS • 6.3 An appraisal completed for Financial Reporting pursuant to International Valuation Standard 1 (IVS-1) requires the following: • 6.3.1 Market Value Basis of Valuation (IVS-1) The existing Appraisal Standard Rules of CUSPAP will be compliant with IVS-1 by including a certification statement which includes the following: Continued on next slide AIC Conference 2010 Victoria, BC

  23. CUSPAP 2010 Appraisal Standard Rules - IVS Certification of value: • My analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Canadian Uniform Standards of Professional Appraisal Practice and IVS. AIC Conference 2010 Victoria, BC

  24. CUSPAP 2010 Appraisal Standard Rules - IVS • 6.4 An appraisal completed for Financial Reporting pursuant to International Valuation Standard 2 (IVS-2) requires the following: • 6.4.1 Basis Other Than Market (IVS-2) The existing Appraisal Standard Rules of CUSPAP will be compliant with IVS-2 by including a certification statement which includes the following: Continued on next slide AIC Conference 2010 Victoria, BC

  25. CUSPAP 2010 Appraisal Standard Rules - IVS Certification of value: • My analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Canadian Uniform Standards of Professional Appraisal Practice and IVS. AIC Conference 2010 Victoria, BC

  26. CUSPAP 2010 Appraisal Standard Rules - IVS • 6.4.1.ii To ensure compliance with IVS-2 Disclosure Requirements 7.2 an Internal (or in-house) Appraiser must disclose in the Valuation Report the existence and nature of the relationship between the Internal Appraiser and the entity controlling the asset. • Definition 2.35 Internal Valuer – is an Appraiser who is in the employ of either the entity that either owns the assets or the accounting firm responsible for preparing the entity’s financial records and/or reports. AIC Conference 2010 Victoria, BC

  27. CUSPAP 2010 Appraisal Standard Rules - IVS • 6.4.1.iii To ensure compliance with IVS-2 Disclosure Requirements 7.3 an appraiser acting as an independent or impartial agent, as a consultant or advisor to a business entity, or as a mediator, must disclose in the Valuation Report the specific role taken in each assignment. • Definition 2.24 External Valuer – is an Appraiser who together with any associates has no material link with the client, an agent acting on behalf of the client, or the subject of the assignment. AIC Conference 2010 Victoria, BC

  28. CUSPAP 2010 Appraisal Standard Comments - IVS 7.30 Scope of Work for Financial Reporting For an appraisal to be considered External, it must involve: • inspection sufficient enough to estimate its H & B use, adequately describe the real estate and make meaningful comparisons • test a reasonable sample of major tenant leases • utilize independent market based assumptions in cash flow analysis • rely on market data/yields with development of subject cash flow AIC Conference 2010 Victoria, BC

  29. CUSPAP 2010 Appraisal Standard Rules - IVS • 6.5Valuation Reporting (IVS-3): 6.5.1IVS-3 envisions third party readers. When preparing an appraisal for financial reporting, this standard calls on the appraiser to consider the impact, if any, of their scope of work on not only the user/client, but also other third-party users such as retail investors. Continued on next slide AIC Conference 2010 Victoria, BC

  30. CUSPAP 2010 Appraisal Standard Rules - IVS 6.5.2 The existing Appraisal Standard Rules of CUSPAP will be complaint with IVS-3 Valuation Reporting statements by including the following additional requirements: • Identify and describe each property type/class • When dealing with extraordinary assumptions, address the probability of occurrence i.e. hypothetical conditions • Include clause specifically prohibiting publication in whole or in part, or any reference thereto, or to the valuation figures contained therein, or to the name and professional affiliation of the appraiser, without written approval of the appraiser. Continued on next slide AIC Conference 2010 Victoria, BC

  31. CUSPAP 2010 Appraisal Standard Rules - IVS 6.5.2 To ensure compliance with IVS-3 Statement of Standards and appraiser should email read-only documents and request a receipt. AIC Conference 2010 Victoria, BC

  32. Section 14 Changes From 2008 • Several edits and housekeeping items. • More significant changes include: - Reasonable Appraiser Definition - Access to Records - Disclosure guidelines - Digital Signatures AIC Conference 2010 Victoria, BC

  33. Section 14 Changes From 2008 • 2.48 Reasonable Appraiser “an appraiser that provides appraisal, appraisal review and consulting services within an acceptable standard of skill and expertise, and based on rationale assumptions” Rationale: Replaced previous Reasonable Appraisers with definition found in Regulations, for consistency. AIC Conference 2010 Victoria, BC

  34. Section 14 Changes From 2008 • 4.2.9 To not create a work file for each assignment - Replaced “not to have access to records” • New 5.6.2 in Ethics Standard – Comments which reads “a member having custody of a work file must allow other members with PP or Insurance Program obligations related to the assignment appropriate access and retrieval. Rationale: Also responsibility of a member who has custody to provide access. Similar to USPAP. AIC Conference 2010 Victoria, BC

  35. Section 14 Changes From 2008 • New 12.8.14 in Practice Notes which reads “in order to avoid the perception of bias or conflict of interest it is recommended that a member disclose to the client any professional services relative to the subject property within the past thirty days and up to three years if appropriate.” Rationale: Provides guidance as to when members should declare conflict. Some AIC member clients requesting. Similar to USPAP. AIC Conference 2010 Victoria, BC

  36. Section 14 Changes From 2008 • New 12.11.2 in Practice Notes which reads “an appraiser must be extremely protectively of their digital signature, in whatever format it is, including PDF, jpeg or securitized digital signature. The signature must be password protected and should never be shared … providing to others not endorsed … and if do so should have written agreement outlining where may be used.” Rationale: Highlights issues in daily practice with digital signatures. IVS-3 also recommends origin, date and time for sending and receipt should be identified. AIC Conference 2010 Victoria, BC

  37. Contact Information • CUSPAP 2010, IVS and IFRS all available on AIC website • Standards Committee • Brian Varner AACI, Chair • Iain Hyslop AACI • Chris Perret AACI • Louis Poirier AACI • Board Liason – George Ward AACI • Staff Liason – Robert Patchett AIC Conference 2010 Victoria, BC

  38. Questions Please do not hesitate to ask questions. AIC Conference 2010 Victoria, BC

  39. Thank “You” for your attention AIC Conference 2010 Victoria, BC

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