• IVS 103 ‘Reporting’ requires the valuation report to disclose a number of matters, including any significant uncertainty or limiting conditions that directly affect the valuation.
  • Valuation uncertainty should not be confused with risk. Risk is the exposure that the owner of an asset has to potential future gains or losses.
    • 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.
  • Quantifying valuation uncertainty does not involve forecasting a worst-case scenario. The objective is not to stress test a valuation to an extreme case.
  • A quantitative measure should always be accompanied with a narrative describing the cause and nature of the uncertainty.

Factors that it may be helpful to consider in order to determine whether valuation uncertainty is significant for tangible asset and business valuations include:

  • whether the valuation is required for internal purposes by the commissioning party or whether it will be disclosed to and relied upon by third parties (the threshold of materiality is likely to be lower if the valuation is to be relied on by third parties);

  • the extent to which the value of a total portfolio is affected if the valuation uncertainty affects only certain assets within the portfolio (this may also involve considering correlation and interdependence between the individual assets);

  • whether the cause of the uncertainty was known to the commissioning party or to a third party relying on it when the valuation was commissioned;

  • whether the effect of the uncertainty could expose the commissioning party or a third party relying on the valuation to significant risk of loss.