International Professional Standards consultation. Response of the Royal Institution of Chartered Surveyors (RICS)

Transcription

1 International Valuation Standards Council (IVSC) International Professional Standards consultation Response of the Royal Institution of Chartered Surveyors (RICS) Contact: Ian Jeal RICS Director of Education and Qualification Standards Ben Elder FRICS RICS Global Director of Valuation Standards

2 Introduction The Royal Institution of Chartered Surveyors (RICS) has noted the publication of the International Professional Standards Consultation documents produced by the International Valuation Standards Council (IVSC) and welcomes the opportunity to comment. About RICS RICS is the global leading organisation for professionals in real estate, land, construction, infrastructure and related environmental issues as well as working in the personal property and business assets sectors. Over 120,000 RICS members, who are Chartered Surveyors, exist globally and operate out of 146 countries, supported by an extensive network of regional offices located in every continent. RICS is headquartered in London and our international work is supported by a network of regional offices and national associations. RICS members play a vital role throughout the entire asset life cycle from initial inspection and measurement, development through to investment in, and the use of physical structures and other assets, as well as financial and business interests. In the valuation field our members expertise covers a very wide range of disciplines, including business valuation. We also provide impartial advice to governments, policymakers and non-government organisations. RICS is an independent professional body, which was established in 1868 and has a UK Royal Charter. We are committed to setting and upholding the highest standards of excellence and integrity, providing impartial and authoritative advice on key land and asset issues affecting businesses and society. RICS is a regulator of both its individual members and firms enabling it to maintain the highest standards and providing the basis for unparalleled client confidence in the sector. As well as technical standards there are also rules of conduct for members and rules for the conduct of business for firms. These rules are coupled with ethical standards for all members. RICS and ethical standards We've created a clear and streamlined set of professional and ethical standards to guide our members. There are five standards. All members must demonstrate that they: - Act with integrity - Always provide a high standard of service - Act in a way that promotes trust in the profession - Treat others with respect - Take responsibility These standards are assessed at two stages as part of our Assessment of Professional Competence (APC), which is the primary qualification entry point for professionals to RICS. Individuals are required to complete an online ethics assessment. Understanding and adherence to the ethical standards are re-assessed as part of the APC assessment interview. 2

3 Response to the IPS exposure draft Dear Sir/Madam, Please find attached the RICS response to IVSC s proposed Framework for International Professional Standards. We are pleased to be able to respond to this consultation which seeks to address key areas that go to the heart of our profession: professional conduct and ethics, and effective self-regulation. The Exposure Draft proposes six International Professional Standards ( IPS ) for achieving and maintaining competence over the career of the professional valuer: 1. IPS 101: Initial Professional Development (IPD) Entry Requirements to Professional Valuer Accreditation Programmes 2. IPS 102: Initial Professional Development Professional Skills and Ethics IPS 3. IPS 103: Initial Professional Development Technical Knowledge 4. IPS 104: Initial Professional Development Practical Experience 5. IPS 105: Initial Professional Development Assessment of Professional Competence 6. IPS 201: Continuing Professional Development (CPD) After reviewing these documents, there are areas of overlap and convergence and we would welcome the opportunity for further involvement and discussion as these standards develop. We would also wish to acknowledge the contribution of those Chartered Surveyors and Fellows of RICS whose knowledge and insight was invaluable in preparing this response. Kind regards Ian Jeal RICS Director of Education and Qualification Standards ijeal@rics.org Ben Elder FRICS RICS Global Director of Valuation Standards belder@rics.org 3

4 General comments 1. We would wish to highlight that the branding of the documents as International Professional Standards could result in some confusion and potential misunderstanding. Different language should be considered that reflects how these statements are obligations for VPOs that are members of the IVSC. 2. We believe that the documents, as currently written, reflect a predominantly western-centric outlook; greater account should be made for different systems in all markets. 3. Although a somewhat minor point, we feel there should be greater consistency in the use of language and terminology across the IPS drafts, and an alignment with other IVSC publications. 4

5 Framework for the IPSs 1. Does the Framework provide sufficient detail on the educational concepts to support the requirements of the IPS 100 series? Subject to the detailed comments below, we believe the material is sufficient to set the overall context for the individual standards. However, in line with our general observations listed above we would like to reiterate that some language used in the Framework documents is inconsistent and we would wish to see these points clarified in future versions of the documents. 2. Do you agree with the distinction made between capability as it relates to professional behaviour and competence as it relates to the integration of professional behaviour with the appropriate level of technical knowledge (para 32 to 35 of the Framework)? There is, inevitably, a blurring of lines between competence and capability. Both depend on the individual having sufficient experience, as well as knowledge and skill, to perform a particular task to the required high professional standard. The emphasis should be on how these two can work in combination to achieve the desired outcome. It is not clear whether sector expertise (paragraph 35) is to be read as specialist knowledge combined with practical experience. We would appreciate further clarification on this. In paragraph 32 the phrase working environments is used. We feel that a more specific phrase, such as the particular purpose and context, would sharpen the focus. Paragraph 34 starts: The competence of the professional valuer is affected by the complexity of the asset or liability class... It would be wrong to tie complexity simply to asset class. Difficult valuation challenges can arise even within straightforward or common asset classes. Furthermore the asset class does not affect the valuer s competence, whichever level it may have reached at the relevant point in time. Instead that level must be sufficient for the valuer to be able to fulfil the valuation assignment; if not, the instruction should be declined. 3. Do you agree that the introduction of the IPSs as drafted will lead to strengthened public trust in the valuation profession and contribute to other desirable outcomes for the valuation profession? If not, are there elements of the IPSs that could be improved to do so? What else might help? The IPSs have the potential to contribute to growth in public trust through universal implementation, though there is recognition that some VPOs already require members to meet or exceed these standards. Overall public trust in valuation as a profession will continue to be heavily influenced by the work of the VPOs in improving consistency and transparency. This in no sense undermines the value of having benchmarks and thresholds in the form of the IPS provided they are appropriately supported. 4. Do you agree with the definition of professional valuer? The definition (paragraph 22) makes no direct reference of the desire to identify a defined threshold in terms of knowledge and skills whether by examination, or formal assessment of professional competence. Reference to accreditation is made in IPS 105 and to formal assessment in the same document (paragraph 8). We think it is important that an appropriate link or reference to reaching a defined threshold is added to the definition of a professional valuer. 5

6 5. Should professional valuers always be independent or does it depend upon the kind of service they are providing? The underlying issue here is often about objectivity, independence and the declaration and treatment of actual or potential (including perceived) conflicts of interest, wherever they do, or might arise. What clients generally require is objectivity and impartiality in relation to the valuation task. True independence is likely to be inefficient, and in many situations, impossible. In certain situations this could actually be counter-productive, working against the development of high levels of skill and expertise. Acting as an internal valuer does not preclude professional objectivity and impartial exercise of judgement. Indeed, the role of an internal valuer can be extremely valuable. There is no single definition of independent which could appropriately cover all situations and eventualities. For some purposes there is a natural reliance on statutes, regulations, rules of regulatory bodies or client s special requirements, which set out specific criteria that a professional valuer must meet to achieve a defined state of independence and objectivity, in order to achieve this clarity. 6

7 IPS 101: Initial Professional Development Entry Requirements to Professional Valuer Accreditation Programmes 1. Is a university degree or equivalent normally a prerequisite for accreditation as a professional valuer in your specialty or geographical area? Should a university degree be a requirement in IPS 101? Generally, and in line with aspects of our education and qualification requirements the answer can be seen to be yes. However, this does not reflect the fact that there should be different entry routes into the profession. We would not wish to see this as a requirement in IPS 101. Emphasis should be on i) quality education, training, and outcomes and ii) ensuring defined standards of knowledge, skills and experience are met before formal accreditation is achieved. An inclusive approach to access to the profession, and the inherent flexibility that requires, should work towards removing excessive entry barriers. Whilst simultaneously upholding standards. We agree with the spirit and principles of IPS Does IPS 101 provide sufficient detail relating to entry requirements? Should IPS 101 be more prescriptive, e.g. entry requirements by asset class? Taken together with the (draft) IPSs covering later stages in the professional development process, the detail in IPS 101 is sufficient. We think it would be unwise to be more prescriptive, as entry requirements, or otherwise, are not necessarily specific to asset classes, except perhaps in certain more specialist areas. This is an area where the VPOs can play an important role. 7

8 IPS 102: Initial Professional Development Professional Skills and Ethics 1. Do you agree that IPS 102 captures the professional skills to be acquired by the end of Initial Professional Development (IPD) (para 9 of IPS 102)? Generally there are no concerns with the points articulated. But there are some omissions that we might have expected to see. These include numeracy (supported by appropriate IT skills), statistical and other analytical or interpretative techniques; and also perhaps a greater emphasis on diligence in ascertaining and understanding clients requirements combined with a capability and resilience for dealing with uncertainty and a degree of robustness when faced with questioning or challenge by clients and other valuation users. 2. Do you agree with the explanation of the term ethics (para 10 of IPS 102)? We would not recognise professional scepticism within the category of ethics. There is also a question of whether professional scepticism is a recognisable attribute in itself or an integral part of the required intellectual, analytical and judgement that should be expected. It is assumed that as a member of the International Ethics Standards (IES) Coalition IVS will seek, over time, to align the coverage of ethics in the IPS with the emerging IES, where the ethical principles in the initial draft are summarised under 10 key headings. In the interim, we accept the material in this draft but observe that certain professional behaviours (e.g. demonstrating and maintaining a professional manner) have more of the character of skills than of ethics and would therefore more appropriately appear under the first heading. 3. Do you agree with the capability areas noted in IPS 102 (para 15 of IPS 102)? Please see the responses to Questions 2 and 3 above. 4. Do the learning outcomes described in IPS 102 capture the behavioural characteristics expected of a professional valuer at the end of IPD (para 15 of IPS 102)? Overall yes, though there may be difficulty in calibrating these outcomes to reflect reasonable expectations for those still at a relatively early stage of professional development We believe this is a matter that could be further developed by the VPOs. 5. For VPOs and others contributing to the education of professional valuers, do you consider that all elements of your education programme are designed to achieve the learning outcomes noted in IPS 102? We believe that the requirements in relation to our education programmes already meet or exceed the benchmarks or standards set out in IPS

9 IPS 103: Initial Professional Development Technical Knowledge 1. Do you agree with the competence areas listed in IPS 103? Are there other competence areas that should be included? (Note that the competence areas included are not meant to be exhaustive.) We would wish to highlight the contradiction of the text in the early paragraphs of this section prescribing competences yet at the same time recognising the list is not exhaustive. We would recommend these are reframed as the minimum recommended standards with an allowance made for some refinement by the VPOs to suit particular market requirements, which may be necessary. 2. Do you agree with the level of detail noted in the learning outcomes of IPS 103? If so, why, and if not, why not? To assist in your assessment, the learning outcomes for the Plant, Machinery and Equipment, and Personal Property asset classes are not as detailed as the remaining asset classes. This question underlines the difficulty of achieving an appropriate balance. We think it would be preferable for the list to remain at an appropriately high level of broad topic headings, rather than include a level of detail that might be better covered by the VPOs, and thus allowing them to refine according to particular market requirements Specific observations are: Common competencies Legal and tax framework: It might be better to split this heading so that matters of tax are dealt with separately, partly because the degree of depth needed in knowledge of taxation is likely to be limited at this stage (and may be differentiated between asset classes), whereas knowledge of the legal framework is likely to show greater commonality In the first entry under learning outcomes, the wording Explains the various forms of ownership of an asset should be amended to read Explains the various forms of ownership of, or rights to use, an asset Technical standards/guidelines: This might usefully differentiate between IVS, national valuation standards (whether set by Government or otherwise), and standards relevant to valuation work set by other standardsetters. In each case what is pertinent and relevant to a particular valuation assignment can then be differentiated. At present the list is rather selective Information technology: It would be appropriate to draw a distinction between basic IT skills which are required for almost any professional role (and which probably do not therefore need to be listed) and those which are more specific to valuation e.g. modelling Valuations for speciality areas or speciality purposes: Specific rather than speciality may be a more appropriate term eg valuation for financial reporting would not automatically be regarded as necessarily involving a specialist discipline 9

10 Real Estate Purpose of the valuation, type of property and geography: It is not clear why these slightly disparate elements are grouped together. In particular, geography is not so much the issue, as identifying the market within which value might need to be considered e.g. local, national, international with further differentiation as appropriate according to sector Purpose might usefully refer to valuations for secured lending; banks are not the only source of loan funding Research: This is one of a number of examples where it might be better to bring the topic headings more into line with the characterisation in the IVS here investigation and inspection (IVS 102) might help sharpen the focus Market evidence: The first entry refers to physical inspection and identification of structural shortcomings, and might be better articulated under a separate heading Special assumptions: Most of the list here bears no relation to the material in the current (2013) IVS Framework on the subject of special assumptions Plant, machinery and equipment, and personal property Valuation analysis: It is not clear why reference to mass appraisal techniques is confined to this asset class (or classes) use of AVMs is growing in importance in relation to certain categories of real estate asset, particularly residential 3. In some learning outcomes, examples are provided. Do you find these examples helpful in providing further explanation and clarification? The draft is striking for the wide variation in levels of definition under the various learning outcome headings. We think it would be preferable for a norm to be established, focussing more on the key principles, and for that to be applied consistently. Whilst inclusion of examples might not be ruled out, it should be possible to articulate the principles sufficiently clearly for examples to be unnecessary. 4. In addition to the current focus on asset classes, should the competence areas in IPS 103 also address industry (sector) speciality areas, and different valuation purposes? For example, with respect to valuation purposes, a sample of competence areas and learning outcomes to be included in IPS 103 could include the following: a) Transactions, eg, purchase, expansion or sale of a business: i. Assesses the value of a target entity for an acquirer taking into account relevant factors including consideration of strategic benefits and appropriate discounts and premiums 10

11 ii. Describes the circumstances in which subject matter experts may be required and the process of reliance thereon b) Valuation for financial reporting: iii. Explains the requirements of the relevant financial reporting standards, including guidance related to purchase price allocations for business combinations, impairment testing of assets, and other areas iv. Explains the differences between fair value for financial reporting and other bases of value c) Valuation for litigation support: i. Describes the special considerations in providing litigation support services, eg, shareholder disputes, marital dissolutions and commercial damages, in the context of the role of the valuer, rules of procedure, expert testimony and/or consultant. Whilst a focus on asset classes, or more strictly, asset groupings which the draft seeks to do, is not unhelpful, the emphasis on initial professional development should be on the issues and concepts common to all (or at least, most) classes, with differentiation only where essential. Thus too much further development of the material in the way suggested would run the risk of insufficient focus on the core skills and too narrow a focus on specific contexts or circumstances. The latter are likely to be developed with advanced training and more extensive experience after the initial accreditation process, rather than being essentially complete at that point. This point is made in paragraph nine of draft IPS 104 After the completion of IPD, practical experience may be required to bring professional valuers to a level of competence needed for other roles or forms of specialisation. These are matters that would benefit from further discussion with the VPOs before IVSC considers adding to the material in the draft IPS IPS 103 has focused on the key Real Estate; Plant, Machinery and Equipment, and Personal Property; Business and Business Interests; and Intangible Assets competence areas and learning outcomes. Do they contain an appropriate depth of knowledge to be achieved in the learning outcomes? Should there be a similar extension of the depth of knowledge for other key areas, eg, debt and preferred shares? Should learning outcomes related to liabilities also be addressed, including contingent consideration liabilities, unfavorable contracts, and other non-financial liabilities? Are there other competence areas and learning outcomes that should be included? See the response to Question 4 above. Before extension of the existing content is considered, these are matters that would benefit from further discussion. 6. Do you agree that all professional valuers, no matter what their speciality, need to undertake some form of accounting/finance/economics education? If not, why not? If so, why? We believe it is essential to have a sound grasp of the basic principles of economics, not least the drivers of markets, including their financing and the impacts of governments and of regulation, the characteristics of market participants, the differences between price, cost and value etc. 11

12 On this foundation, further detail on accounting and financial reporting can be developed ensuring that one of the most common purposes for which valuation advice is required is adequately covered. 12

13 IPS 104: Initial Professional Development Practical Experience 1. Do you agree with the concept and the role of the practical experience supervisor? Please explain It is noted that a practical experience supervisor is defined as a professional valuer who is responsible for directing, advising and assisting [IPD] candidates in acquiring sufficient practical experience. It is an important aspect of initial professional development that supervision and appropriate mentoring is available and duly occurs, with appropriate records/documentation to confirm that this has been done. This underlines the fact that monitoring and assessment should essentially be outcome-based, whilst recognising that input-based recording may help confirm that experience is sufficiently broad. Competence should be clearly demonstrated and not just assumed. The exact criteria to be satisfied should be for the VPOs to specify, monitor and where appropriate enforce. 2. Do you agree the threshold period of 1,500 hours in a supervised work environment should normally be a prerequisite for accreditation as a professional valuer? We agree there could be a minimum threshold requirement for recognition as a professional valuer and that there is merit in identifying a common threshold for all VPOs, whilst recognising that some may wish to set a higher threshold. This appears to be recognised in paragraph 14. This is an area that warrants further discussion. 13

14 IPS 105: Initial Professional Development Assessment of Professional Competence 1. Does IPS 105 provide sufficient detail on activities to assess the professional competence of the professional valuer candidate at the point of accreditation? Are there additional assessment activities that should be included? We are comfortable with the prescribed level of detail in IPS

15 IPS 201: Continuing Professional Development 1. Do you agree with the threshold level for continuing professional development of at least 120 hours of relevant professional development in each rolling three year period, of which 60 hours must be verifiable? We believe in a balance of formal and informal professional development, but would welcome further discussions on the purpose and benefits of the different models articulated, including the stipulation of a minimum requirement for an inputs-based approach compared to the combination model. We feel this area of professional development, and the regulation and assessment thereof, is a dynamic area and would welcome further conversations on this point. 2. Do you agree that the professional valuer should complete at least 20 hours of relevant professional development annually? This mirrors our current professional development, which we think is an appropriate minimum level of professional development, whilst recognising that a competent professional valuer may, in actuality, complete much more than this. [DN: To the extent that this ties in with the RICS requirement, no exception would be taken] 3. Should relevant professional development be expanded upon? Please explain what you would consider to be relevant professional development We believe in an approach to professional development that focuses on individual needs and requirements. It would be for the individual professional valuer to identify relevant professional development that reflects their working situation. VPOs will, of course, have a role to play in supporting professional valuers in identifying and providing appropriate and relevant development opportunities. 15