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More than three million people worldwide have been infected with COVID-19 and the number of confirmed cases in Singapore have crossed the 20,000 mark as at the beginning of May 2020. The circuit-breaker period has been extended to 1 June 2020 and tighter circuit breaker measures such as closing of more workplaces were also implemented to curb the spread.
The Covid-19 Risks Outlook report issued by the World Economic Forum (WEF) highlighted the key concerns by top risk professionals as prolonged recession, job losses, protectionism and another outbreak of infectious diseases. It also reported that cyber-attacks, data fraud, the breakdown of IT infrastructure, geopolitical disruptions and tighter curbs on the movement of people and goods are keeping senior leaders up at night.
While we are still in the extended Circuit Breaker period, which is anticipated to end on 1 June 2020, businesses and individuals may want to review their respective positions to ensure they are not missing out on the support measures that have been announced by the Singapore Government in the past few months.
Covid-19: IVSC's valuation guidance during market uncertainty
By: Adrian Cheow, Executive Director & Practice Leader, Deal Advisory 
The International Valuation Standards Council’s (“IVSC”)^ Technical Boards issued a special letter in March 2020 providing guidance on conducting valuation under uncertain times, given the impact of Covid-19 on businesses and in particular on valuations. The objective of this letter, as stated by this letter, is to “provide information on factors that may give rise to significant valuation uncertainty in a way that is useful for those who will be preparing or relying on valuation”.
Whilst the letter is mainly directed to valuers, some key areas to take note of if you are commissioning or reviewing a valuation for, amongst other things, financial reporting or transaction are:
- Valuation is not a fact but an estimate:
“One of the main issues when dealing with valuation uncertainty is that a valuation is not a fact, but it is an estimate of the most probable of a range of possible outcomes based on the assumptions made in the valuation process”; - There is a difference between valuation uncertainty and market risk:
“Valuation certainty and market risk are independent of each other. For example, a valuation of a highly liquid quoted stock has little uncertainty, but that stock may still be seen as carrying a high market risk”; - Valuation uncertainty does not mean stress testing but considering the most likely scenario:
(i) “Valuation uncertainty should not be confused with stress testing, i.e. measuring the impact on a current price or value of a specified event or series of events”; and (ii) “Where two or more alternative scenarios are possible the valuation should be based on the most likely scenario”; - Valuation can still be conducted under uncertainty and proper disclosure by valuer is necessary:
“the existence of 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”; - Uncertainty in valuation can be quantified using sensitivity analysis for certain assets:
“The principle of quantifying uncertainty by the use of a sensitivity analysis can be applied to assets where there are a sufficient number of reasonably possible alternative numeric inputs that could have been selected on the valuation date”; and - Where such quantification has been done, valuer should describe it:
“A quantitative measure should always be accompanied with a narrative describing the cause and nature of the uncertainty. A purely numeric illustration will only confirm uncertainty, not explain it”.
The full letter from IVSC can be found here: https://www.ivsc.org/files/file/view/id/1719
If you are looking to engage a valuer for your business needs during these uncertain times, our Deal Advisory department may be able to help you.
Note ^: IVSC is a not-for-profit organisation that helps set global standards for the valuation profession.
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