The American Society of Appraisers (ASA), in a letter July 21 to the Securities and Exchange Commission (SEC), voiced its support for a proposed rule that harmonizes existing fund valuation guidance and clarifies what is expected from boards and advisors when a market quotation is not readily available, according to a post on the ASA website.
According to the proposed rule, the SEC has not updated fund valuation practices under the Investment Company Act since 1970. The proposed rule will update the framework and understanding to the SEC that boards and advisors should consult with a valuation specialist when in need of fair value determinations for hard-to-value assets, ASA said.
“Based on our review of the proposal, we generally support the proposed actions the commission wishes to take, and specifically wish to applaud the commission for acknowledging something our over 5,000 members have known for a long time,” the ASA said in its letter to the SEC, “that determination of the value of a hard-to-value asset is a complex process requiring diligence and care from all parties involved in making a value determination. The proposed rule not only harmonizes existing (and outdated) valuation guidance with more contemporaneous expectations, but paints a clearer picture of what is expected from boards and advisors when a readily available market quotation is unavailable for a fund asset.
“We believe the proposed rule sends a clear message regarding the commission’s expectations in connection with fair value determinations that boards and advisors should, in all possible situations, consult with a valuation specialist when they need a fair value determination,” the letter went on to state. “So-called pricing services do not provide the level of detail or analysis necessary for boards to reasonably rely on their conclusions and fulfill their obligations under the act.”
ASA also pointed out that modern asset valuation is a mature, nuanced practice that regularly is taught by ASA and other professional organizations in support of thousands of valuation professionals across the globe. With a robust body of knowledge behind the approaches, methods, and techniques used to produce a credible opinion of value, valuation professionals and especially credentialed professionals – provide a level of confidence and reliability that can be used credibly by boards in determining asset values.
“Our commitment to quality fair value measurements is not new, either,” the organization wrote. “ASA, along with our compeers AICPA and RICS have worked for years to develop and implement the Certified in Entity and Intangible Valuations (CEIV) credential at the urging of the commission. This work, done in connection with fair value measurement for financial reporting purposes, has developed a range of tools for fair value practitioners in line with the commission’s stated goal of increased fair value measurement reliability. Our work in the CEIV project buttresses our belief – and one shared by the commission – that reliable, credible fair value determinations are crucial to boards, advisors, and investors alike and should be performed by trained, credentialed professionals.”
ASA said it supports the direction being taken by the SEC in this proposal and looks forward to other opportunities to work with the SEC on valuation-focused issues.