Hong Kong’s regulator should set a standard for qualifying valuers, brokers and accountants say
Hong Kong’s Securities & Futures Commission should issue standards for qualifying the valuers of non-property assets such as brand names in mergers and acquisitions, following a similar move by US regulators, said the city’s brokers and financial industry experts.
The urgings follow several cases of mergers and acquisitions in the city with valuations that were deemed unreasonable, triggering a warning in May by the SFC.
“The SFC warning is a good start to alert the market to address the problem,” said Stella Law, a member of the Royal Institution of Chartered Surveyors (RICS) and a RICS-registered valuer. “However, we would like to see the SFC go further to ensure the quality of valuation in the market. It would be positive for the SFC to consider following the SEC to regulate more on valuations to ensure quality and protect investors.”
Property valuations in Hong Kong must be conducted by certified surveyors under the law, but there’s no standard or qualification requirement for non-property valuations, such as brand names, enterprise values or intellectual property.
“Without a clear certification process, it means anybody can be a valuer on transactions,” Law said. “This is hard for maintaining the standard.”
Hong Kong’s SFC could take a page out of the playbook of the US Securities & Exchange Commission (SEC), which supports and endorses the Certified in Entity & Intangible Valuations (CEIV) credential developed by the American Society of Appraisers (ASA), the American Institute of Certified Public Accountants (AICPA), RICS, major accounting firms, and others. The credential makes up for a lack of unified identity in the valuation profession, Law said.
The SFC in May warned company directors and financial advisers to ensure that assets are properly valued in all mergers and acquisitions to protect shareholders’ interests, or risk punishment by the regulator. Valuers may be liable if their reports contain any materially false or misleading information, the SFC said.
“Directors do not appear to have always acted properly when assessing targets or disposals,”the SFC’s chief executive Ashley Alder said in the statement. “The SFC will seek to take action where it can be shown that such failures by the directors have resulted in loss to the shareholders.”
Accountancy is one industry where different standards in local markets are converging and conforming to a single international standard, which has added transparency, said Clement Chan Kam-wing, managing director of the accounting firm BDO.
“The financial statements of some companies contain valuation reports of their investment assets,” Chan said. “The valuations of these assets affect their financial performance, but then there’s no standard for valuation. It’ll be great if valuations can follow a similar standard” as with global accounting, he said.