The International Private Equity and Venture Capital Valuation Guidelines Board (“the IPEV Board”) has published the 2018 edition of the International Private Equity and Venture Capital Valuation Guidelines (“the Guidelines”).
The IPEV Board periodically updates the Guidelines to reflect changes in accounting standards and enhancements in best practice. The last revision to the Guidelines was in 2015. This year’s update reflects the continued experience of industry practitioners in applying IFRS 13 and ASC Topic 820 (US GAAP), and incorporates other valuation guidance such as that reflected in the working draft of the American Institute of Certified Public Accountants Private Equity and Venture Capital Valuations Guide.
In October 2018, the IPEV Board consulted on amendments to the 2015 Guidelines. Feedback received has subsequently been carefully considered and incorporated into the final 2018 Guidelines, where appropriate.
The IPEV Board has worked to maintain the historical framework of the Guidelines. The IPEV Board has sought to improve readability and eliminate confusion, and Section I now presents the 2018 Guidelines (boxed and shaded) with explanatory comments, while the full Guidelines can be found in Appendix 1. In addition, a number of enhancements have been made including:
- Clarifying that using the Price of a Recent Investment should not be the default Valuation Technique. The Guidelines reinforce the premise that Fair Value must be estimated at each Measurement Date as required by the relevant accounting standards. Fair Value may equal the Price of a Recent Investment, however this assessment will require careful consideration of the facts and circumstances.
- Replacing “Private Equity” with the term “Private Capital” to prevent misunderstanding and highlight applicability to various types of private Investments in Debt and Equity by various types of Investment Companies/Entities.
- Increasing detail on valuation considerations for early-stage Investments.
- Further information on valuing Debt as an Investment.
Paul Cunningham, IPEV Board Chair, said:
“The IPEV Guidelines, which are required by many fund agreements, continue to be a valuable source of guidance for managers and investors globally that is both practical and principles-based. The IPEV Board has incorporated feedback received during the consultation process whilst ensuring the Guidelines are consistent with the accounting standards in order to assist industry practitioners in establishing fair value estimates which are consistent, relevant and reliable.”
Karin Lagerlund, IPEV Board member, said:
“The IPEV Board hopes the enhanced Guidelines and explanatory text will provide practitioners and investors alike with a robust framework for carrying out and reviewing valuations. The expansion on guidance on determining the fair value of debt, further guidance on valuing early-stage investments and removal of Price of a Recent Investment as a valuation technique from the updated 2018 IPEV Guidelines will aid GPs in providing robust estimates of Fair Value that is required by their LPs.”
Notes to editors
1. The IPEV Board and Valuation Guidelines
The mission of the IPEV Board is to provide high quality, uniform, globally acceptable, best practice guidance for private capital valuation purposes.
The IPEV Board was created as an independent body in 2005 and is responsible for maintaining, promoting, monitoring and updating the IPEV Valuation Guidelines. The Board has an advisory role and gives guidance on the application of the Guidelines to all stakeholders in the private equity and venture capital industry including practitioners, investors, regulators and auditors. More information about the IPEV Board can be found here.
2. IPEV Valuation Guidelines – 2018 edition
The 2018 edition of the International Private Equity and Venture Capital Valuation Guidelines is available here.
3. Contact details
For further information, please email [email protected].