Vietnam valuation standards 08, 09 and 10

On August 20, 2015, the Ministry of Finance issued Circular No. 126/2015 / TT / BTC on Criteria for Valuation (SA) of Vietnam No. 8, 9 and 10 (Circular 126) replacing standards. The SA, 7, 8 and 9, which have been applied since 2008, have revealed a number of limited and inappropriate issues in the context that the Law on Price and related legal documents have come to life. At the same time, to suit Vietnam's specific conditions and the process of international economic integration is taking place more and more deeply as today.

The three SA standards issued by the Ministry of Finance this time are important SA standards in the Vietnam SA standards system, which have updated and changed the names of the standards from the "comparative method" and " cost method ”,“ income method ”to“ market approach ”,“ cost-based approach ”,“ income-based approach ”. Subjects of these SA standards include: Practicing price appraisers, SA businesses, other organizations and individuals conducting SA operations, and those who are SA customers, third parties use SA results.

Price Market Magazine would like to introduce the main contents of these 3 Standards, specifically as follows:

Criteria for appraisal of prices No. 08

Regarding the name, "Criterion No. 08 - Approach from the market" to ensure inclusiveness, consistent with the approach in the International SA standard is a comparative method in the market approach. (Market Approach), at the same time, emphasize how the valuation of assets is through market price information of identical or similar assets.

This standard confirms that a market approach can be used to determine the value of SA assets on a market or non-market basis according to the Vietnam SA standards. In the past, it was often conceived that the comparative method was only applied to determine the value of assets on the basis of market value.

In order to determine the market value, the application of market approach should reflect the views of ordinary entities participating in the SA market, based on the transaction prices of comparable assets. after adjusting the level of price impact of the differentiating factors. The value of SA assets should be estimated and assessed on the basis of the needs of ordinary objects participating in the appraised asset market, not based on special characteristics, which are only valid for certain individuals. subjects participating in the market of SA assets.

In order to determine the non-market value, the appraiser needs to determine the value of SA assets on the basis of special properties of SA assets, customer groups (or investors) who need to use special properties. That particular feature of the property. From that, we examine the transaction prices of comparable assets with special characteristics similar to the specific market participants (or investors), wishing to use the characteristics. special property of SA.

The steps applied in the SA based on market approach do not repeat the steps applied in SA but refer to the 06 general steps of the SA process specified in Vietnam SA standard 05, at the same time, stipulating some points to be noted that appraisers should perform when conducting SA in 06 general steps. Requirements on actual surveys, gathering information about comparable assets of successful, unsuccessful transactions (offer, sale); time of transactions, store evidence of transactions and, at the same time, determine indicative prices of comparable assets, in case of fluctuations in asset prices during certain times such as: transfer successful transfer, offer or sale of comparable assets up to the time of valuation. These issues are clearly specified in this Standard.

Standard No. 08 promptly supplemented regulations on how to determine price adjustment levels due to differences in comparative factors. Accordingly, the level of adjustment can be determined through the techniques specified in the Standards and regulations on the group of factors related to transactions of previously adjusted assets, and the group of comparison factors. characteristics (technical - economic) of the property are adjusted later. In particular, in principle to control the determination of indicative prices, this standard limits the difference between each quoted price and the average of the quoted prices in order to obtain a representative price. higher (different from the old Standard, control the difference between the general representative price and the indicated price not exceeding 10%). In addition, the control is also adjusted higher than the old regulation (no more than 15%) in order to reduce the need to re-select comparable assets when the control principle is not guaranteed while the appraisers meet restrictions on the selection of comparable assets have many similarities with the appraised assets.

Criteria for appraisal of prices No. 09

Criteria for valuation No. 09 "Approach from cost" is one of the basic approaches of SA. Accordingly, the way to determine the value of SA assets through the cost of creating an asset with the same function, utility or similar to SA assets.

This standard has supplemented the phrase "In case there is Vietnam SA standard applied separately to a specific group of properties, this specific SA standard shall be applied when conducting the SA in the specific group above." . The content of the Standard focuses on providing the basics of the approach from cost, the SA methods applied, the most common calculation techniques for asset types.

The value base for this new standard is supplementary guidance on the application of the cost approach to determining the value of SA assets on a market or non-market basis. Accordingly: to determine the market value, the application of the cost approach should reflect the costs, the desired usefulness of the property, the depreciation value of the property, etc. of the majority of people. participate in the SA assets market. In order to determine non-market value, the application of the cost approach should reflect the special characteristics of special users, special features or special use features of SA assets.

Regarding SA method, the Standard specifies more specifically about SA methods that are "renewable cost method" and "alternative cost method", and at the same time, the Standard clearly distinguishes the basic content. of renewable and replacement costs and the formula for calculating these two types of costs; Additional content determining profits of investors (manufacturers). The standard has updated, revised the concept of 03 main types of wear and tear including physical wear, functional wear and peripheral wear to standardize according to the 2013 SA standards and international references. Depreciation is also divided into 02 types: Deprecable and non-corriable wear.

Criteria for appraisal of prices No. 10

Criteria for valuation No. 10 "The approach from income" stipulates and guides the implementation of the approach from income in the SA process for all types of assets. However, in cases where the Vietnam SA Standard applies specifically to a particular group of assets, the SA is applied.

The income-based approach can be used to determine the value of SA assets on a market or non-market basis.

In order to determine market value, the application of the income approach should reflect the characteristics of the majority of participants in the SA asset market. Specifically: net income, operating expenses, capitalization rates, discount rates and other input data should be assessed on the basis of past market surveys of appraised and predicted assets. future, considering the situation of supply - demand, development prospects of the sector market.

In order to determine non-market value, the application of the income approach should reflect the special characteristics of the special user object or the special use feature of the appraised asset. For example, appraisers may apply capitalization rates or discount rates that only appraised assets may own due to different characteristics of assets or special investment criteria of investors.

Where applicable, the income approach determines the value of income-generating assets by converting the future cash flows from the assets to the present. This approach is based on the principle of valuable property because it generates income for the owner. There is a direct relationship between the value of the property and the income generated from the use of the property, so the greater the other factors, the greater the income earned from the property to the owner, the greater the value of The higher the property.

The income approach consists of two main methods: the direct capitalization method and the discounted cash flow method. In which: The direct capitalization method is applied in cases where the income from assets is relatively stable (unchanged or changed in a certain proportion) during the remaining useful life (be calculated by the remaining economic age) of the property or permanently. The discounted cash flow method is applied in cases where income from assets changes over different periods (unstable).

Accordingly, regulations such as: calculation formula, steps taken for direct capitalization method and regulations on determining steps for forecasting cash flow in the future; estimating net cash flow on the basis of estimating income from assets and cost estimates related to asset exploitation and operation; estimated value of assets at the end of the forecast period; estimate appropriate discount rate; Asset value determination through the results of the above steps for the discounted cash flow (DCF) method is specified and detailed in this Standard.

Circular 126 takes effect from January 1, 2016, Vietnam SA standards include: Standard No. 07 - Comparative Method, Standard No. 08 - Cost Method, Standard Criterion