Speech By Mrs Josephine Teo, Senior Minister of State for Finance and Transport, At The Business Valuation Conference 201424 Mar 2014
Mr. Michael Lim, Chairman of the Singapore Accountancy Commission
Sir David Tweedie, Chairman of the International Valuation Standards Council’s Board of Trustees,
Mr. Eric Teo, Chairman of the Institute of Valuers and Appraisers of Singapore Work Group, or IVAS
Ladies and gentlemen:
1. Good morning. Thank you for inviting me to join you at the inaugural Business Valuation Conference. A special welcome to the overseas participants who have made an effort to be here.
Growing Importance of Business Valuation
2. Singapore has a well established accountancy sector. Given its importance to the overall development of the corporate sector in Singapore, the Ministry of Finance established the Committee to Develop the Accountancy Sector (CDAS) in 2008 to undertake a holistic review of the industry and recommend strategies to strengthen capabilities. Among several key recommendations that the committee made, the committee pushed for the development of Singapore as a Centre of Excellence for Business Valuation.
3. As we understand it, business valuation refers to the process of determining the value of a business, its ownership interest, or a particular asset or liability of the business. It is an important aspect of investor and corporate activities in the financial markets.
4. Over the past few years, the role of business valuation has gained increasing prominence. The Global Financial Crisis in 2008, in particular, placed financial instruments and derivatives in the spotlight. Many believe that the lack of relevant and consistent valuation standards to accurately price such assets resulted in poor understanding of their inherent risks. This deficiency contributed to the crisis.
5. Closer to home, there is growing recognition of the need for high-quality business valuation. The report of the Asian Business Advisory Council to the Asia Pacific Economic Cooperation (APEC) Finance Ministers’ meeting last year discussed the contribution of business valuation to the development and stability of financial systems. Intellectual property and other forms of intangible assets increasingly make up a larger proportion of corporate balance sheets. However, the subjective nature of these assets makes their proper valuation a challenge. This points to the need and opportunity to enlarge the pool of business valuation professionals and to raise their competency levels to higher standards.
6. Furthermore, there is a shift in focus towards fair value accounting in corporate financial reports. For business valuation professionals, there is now the added dimension of helping companies’ management to prepare financial statements, or supporting the audit teams to conduct reviews of the fair values within the company’s financial statements.
Rising demand for Business Valuation expertise
7. Within Singapore, two specific activities will likely fuel demand for business valuation: first, mergers and acquisitions (M&As), and second, international arbitration.
8. In 2013, Singapore companies were reported to have made 90 bids in outbound acquisition, totaling US$17.4 billion. This was a leap of 74% from the US$10 billion in outbound acquisition bids just one year ago, and made Singapore the most active bidder among South East Asian countries. M&A activities, especially those involving financing for large deals, must be backed up by good quality business valuation.
9. Singapore is also strengthening its position as an international arbitration hub. The Singapore International Arbitration Centre (SIAC) handled nearly 260 new cases last year, with total sums in dispute of S$6 billion. This represented a 10 per cent increase in volume over 2012, reinforcing the SIAC’s position as one of the fastest-growing arbitral institutions in the world. In many cases, especially those relating to shareholders’ disputes or the assessment of damages, litigators and the parties involved will require a pool of competent business valuation professionals to provide expert testimonies to assist the courts and arbitration tribunals.
10. Developing the Business Valuation sector will therefore boost Singapore’s position as a global financial and leading arbitration hub.
The Institute of Valuers and Appraisers of Singapore (IVAS)
11. The formation of the Institute of Valuers and Appraisers of Singapore (IVAS) Work Group by the Singapore Accountancy Commission (SAC) is therefore timely, and will enable the SAC to build a strong foundation for developing Singapore as a Centre of Excellence for Business Valuation.
12. One of the Institute’s priorities is to promote greater clarity and consistency in business valuation standards. To this end, it has joined the International Valuation Standards Council (IVSC), which is the international standard-setter for business valuation. Moving forward, IVAS will work with the IVSC to raise international business valuation standards and advocate for their adoption by corporations, valuation practitioners, and other stakeholders in the valuation profession. The IVAS will also support IVSC’s efforts to improve transparency and confidence in the valuation process in the Asia-Pacific region.
13. To promote Singapore as the Centre of Excellence for the training and professional development of business valuation professionals, IVAS will develop a Singapore-based professional certification programme. I am very encouraged by the fact that in January this year, the IVAS Work Group had published the Body of Knowledge, a curriculum, as a first step towards realising this objective.
14. IVAS aims to work closely with universities and industry practitioners to conduct research in areas related to business valuations and engage in thought leadership initiatives. I’m told that in fact, the first ever Business Valuation Market Study conducted by the IVAS together with Ernst & Young, demonstrated the growth potential of business valuation for the purposes of complying with stock exchange requirements. More findings of the market study will be presented later today.
15. There is also a strong need to develop standards and methodology for intellectual property valuation, an area that for us in Singapore, will naturally involve the Intellectual Property Office of Singapore (IPOS). Such standards will complement the intellectual property financing scheme that various financial institutions and IPOS plan to roll out in the coming months. The IP financing scheme, is where the Government partially underwrites the value of IP used as collateral, and the scheme will facilitate IP-rich companies in Singapore to access capital for growth and expansion. This is an area of development that we think will become increasingly important for Singapore, as we strive to build a greater base of knowledge within our economic sectors.
16. In conclusion, business valuation is a promising specialisation that will add depth to the accountancy and corporate sector in Singapore. There is good potential for Singapore to establish a niche within the Asia-Pacific region for valuation professional expertise through the IVAS.
17. I urge all stakeholders to step forward and proactively support IVAS’ efforts as we work towards building the business valuation profession here.
18. Last but not least, I wish you all a fruitful conference ahead. Thank you.