New Principles for Valuation Entail New Professional Standards

Finally Italy has aligned with benchmark countries concerning principles of corporate valuation: the OIV, the Italian Organization for Valuation has in fact recently issued the Italian Principles of Valuation (PIV). Thanks to these principles, Italy can be included in the vanguard of countries possessing advanced national business valuation principles: the US, Japan, Germany, Canada, China, Hong Kong, and Singapore.

The experience of these economies shows that introducing valuation principles augments the reliability of financial assessments, because it decreases the dispersion of possible valuation outcomes. Reliability not only means shareability, but also transparence in valuations, which must be well-motivated, unbiased and unambiguous. Corporate valuation is a profession that is done in the public interest. Valuation experts must do their work while meeting exacting professional and ethical standards with respect to the ultimate beneficiaries of their assessment (who are not necessarily the clients). Think about balance sheet valuations. Those who stand most to benefit from these are those who need it for investment or other purposes, not the company paying for the valuation job.

Italian Valuation Principles embody the latest generation of thinking about business valuation, going beyond existing valuation standards, to included so-called performance standards (i.e. the set of rules to be followed in relation to the valuation task being given). This is a process that is ongoing in other countries, the US and Canada, especially, under the thrust of authorities supervising financial markets, but which has yet to produce a draft to be put to public scrutiny.

Valuation principles are a fundamental pillar for the corporate valuation industry to evolve towards higher quality and transparency. Although necessary, this pillar is not sufficient, however. In most advanced countries another pillar is constituted by professional associations of valuation experts, which through a system of crediting and continuous education guarantee the training of professionals, both in terms of them knowing about the consequences of errors in business estimates and adopting an adequate code of ethics.

The latter is still missing in Italy, even though the process to get there has been set in motion by the release of the Italian Principles of Valuation. The implementation of the principles requires a significant level of professional sophistication and it's only natural that the profession will organize itself to satisfy the new needs for expert training, in order to produce high-quality valuations. Better principles and higher professional skills will enable valuators to reach that level of integrity, reliability, and impartiality which is necessary to gain and increase trust in the eyes of the final users of corporate valuations.