Valuation Principles, Standards and Ethics
This domain tests the foundation of every assignment: choosing a defensible basis of value, following the standards hierarchy, and acting ethically when client pressure conflicts with evidence. Expect definitions, standard references, and scenario-based ethics.
Core rules
- Value is an estimate, not a fact. Price is what was paid; cost is what was spent; value reflects perceived benefits at a stated date.
- Market value assumes an arm's-length transaction after proper marketing, with informed and willing parties, neither under compulsion, on the valuation date.
- Select the basis from the purpose and applicable standards: market value for lending or financial reporting; market rent for lease comparisons; investment value only for a named client; liquidation for forced disposal.
- Follow international valuation standards for engagement scope, investigation, bases, and reporting. Record sources, assumptions, and limiting conditions.
- Ethics require integrity, objectivity, competence, confidentiality, and transparency. Fees must not be contingent on a predetermined result; disclose conflicts and decline work you cannot perform competently.
Worked example
A lender asks for a valuation and offers a bonus if the figure supports a requested loan. The market evidence indicates 2.4 million; the client wants 2.8 million. The correct response is to decline the contingency, state the basis as market value, report 2.4 million with supporting evidence, and document the instruction and any pressure. If the client insists, withdraw rather than misstate.
Traps
- Treating price or cost as value.
- Using fair value without naming the reporting framework.
- Confusing valuation date with inspection date or report date.
- Accepting contingent fees or undisclosed conflicts.
- Quoting a standard without applying its scope and reporting requirements.