In March 2020, the International Valuation Standards Board (IVSB) of the International Valuation Standards Council (IVSC) issued a release on “Dealing with Valuation Uncertainty at Times of Market Unrest.” This release discusses the implications of valuation uncertainty on valuation opinions. This release provides important insights to users and preparers of valuation opinions. Given the market disruption caused by the COVID-19 pandemic, this release is especially timely.

Business values are based on expectations of future cash flows. As the future is unknown, there is some uncertainty in virtually all business valuation opinions. The fact that valuation opinions are typically expressed as a point estimate may lead users to overlook or misinterpret the degree of risk associated with an asset. This problem is exacerbated when assets are relatively illiquid and require significant time and effort to sell.

Understanding the degree of valuation uncertainty can be important to users of valuation opinions. Uncertainty relates to both the potential range of outcomes and the relative probabilities of “extreme” valuation results.

While valuations typically contain an element of uncertainty, International Valuation Standards 103 requires this to be disclosed if it is significant. Significance should be considered from two interrelated aspects including:

  • Whether the potential impact on the valuation figure is significant; and
  • Whether it is of relevance to an intended user of the valuation.

A useful test for considering whether valuation uncertainty is significant is to consider whether failure to disclose the uncertainty would lead a reasonable person to take action that relies on the reported valuation that they may not have taken if the uncertainty had been disclosed.

Additional items noted in the IVSC release include:

  • Valuation uncertainty is not the same as market risk;
  • Key drivers of valuation uncertainty include 1) Market Disruption—broad economic factors or more narrow factors with uncertain impact on an industry and its participants; and 2) Input (assumption) Uncertainty—future outcomes associated with key valuation assumptions may cover a broad range;  and
  • Significant uncertainty does not mean a valuation cannot be undertaken, but it does mean that significant assumptions within the valuation approach and methodology should be disclosed within the valuation report.

The IVSC is a not-for-profit organisation that acts as the global standard setter for the valuation profession, serving the public interest. The IVSC is unique in the role it plays as a valuation standard setter. It is not a valuation trade body. The IVSC is a leader in the mission to raise standards of international valuation practice and is overseen by an independent board of global leaders. Its core objectives are to:

The IVSC facilitates collaboration and cooperation among its member organisations, who are valuation service providers, financial services businesses, regulators, international bodies and academic institutions. The IVSC consists of more than 130 member organisations from around the world and is supported by numerous sponsors who are leaders in the valuation profession.

For more information, please contact Raymond Rath, ASA, CEIV™, CFA®  at +1 (949) 475-2808 or