Guest Article: ASA Participates in China Valuation Profession Development
Developments impacting the valuation profession in the United States continue at a rapid rate, and those outside of the U.S. are also moving at a rapid pace. Within Asia, the increasing recognition of the benefits of market-based economics and the adoption of IFRS have led to a significant focus on improving the valuation profession. There is strong interest in enhancing professional education and training, improving valuation standards and developing improved valuation methodologies and skillsets for developing valuation assumptions.
The Chinese Ministry of Finance noted needs for further development of the Chinese valuation profession. Recognizing these needs, the China Appraisal Society (“CAS”) recently joined the International Institute of Business Valuers, and educational institutions in China are working to enhance knowledge of the valuation process. Several universities now offer degrees in valuation.
Recently, I lectured on intangibles valuation at the Zhongnan University of Economics and Law in WuHan, China. I also attended and presented at a two-day conference on valuation organized by Zhongnan University of Economics and Law (“ZUEL”) this past November. This article summarizes key observations from the conference.
The 2nd International Forum on New Developments of Valuation – Exploration and Valuation of Business Value Driven by Intangible Assets was held at ZUEL, the lead organizer of this conference. Co-organizers of the conference included the China Appraisal Society, American Society of Appraisers, Valuation Research Center of Xiamen University and School of Public Finance and Taxation of CUEB. The conference was very well attended with representatives and/or presenters from each of the following: Chinese Ministry of Finance, Big Four valuation practices, international valuation firms, Chinese valuation firms, educators with a focus on business and intangibles valuation, appraisal organizations and various industry representatives.
The conference included two presentations by representatives of the State-Owned Assets Supervision and Administration Commission of the State Council (“SASAC”) of the Ministry of Finance (“MoF”). The MoF is responsible for the overview and development of the appraisal profession in China. Much like recent comments by our SEC, the MoF expressed a strong interest in improving the structure of the valuation profession in China and improving the quality of valuations. Much like the U.S., there is government guidance in China providing requirements for valuations. Government guidance in China includes requirements specific to business and intangible asset valuation.
Comments/recommendations in the MoF presentations included:
- Increase the use of multiple approaches for performing a business valuation – the Market Approach is reportedly performed on a relatively infrequent basis with much greater reliance on the discounted cash flow method.
- Improve the quality of data and the use of complete data in performing valuations
- Ensure that the intangible value of a business is accurately captured – certain valuations require inclusion of intangible value of the business in the valuation report
- Enhance compliance with standards
Given the Chinese focus on moving rapidly from a manufacturing to an intangibles-based economy, several presentations focused on business structure and the role of intangible assets. These included:
- Intellectual Property Strategy and Competence of a Company
- Industry Structure and Management Efficiency Impact on the Intangible Value of an Enterprise
- Developing Intellectual Property to Enhance Business Value
- Intellectual Property Values as Collateral
Several conference presentations also discussed merger and acquisition strategies and outbound investments. Similar to U.S. valuation conferences, other topics included: goodwill impairments, valuation methodologies, intangibles issues in different industries and the use of binomial.
The 2nd Annual Forum demonstrated the strong interest and substantial efforts in developing the valuation profession within China. In addition to the conference presentations, I received an abstract of a variety of research papers developed by Chinese academics. The abstracts confirmed a high degree of interest in intangibles valuation.
Raymond Rath, ASA, CFA