Asset Valuation – Fixed and Industrial Asset Valuations

What is an appraisal?

A appraisal is the process of estimation and technical opinion of the price most likely that an asset could have on an open market based on its physical characteristics, remaining useful life, state of repair and, sometimes, its geographic location.

We call "asset" the set of goods and rights that are owned by a company, institution or individual, which at a given moment can be converted into money. 

How are assets divided and categorized in the valuation?

Asset valuation is the process of truthfully estimating the value of an asset, whether tangible or intangible, using verifiable data. 

It is important to perform an asset valuation to make informed decisions within a company. It allows us to support financial, accounting, tax and insurance reports.

For example, if we wanted to take out insurance that covers our company's laboratory equipment, replace facilities with more modern ones (or avoid losses in inventory adjustments and liquidations), listen to purchase offers or simply verify that we comply with the International Financial Reporting Standards, it is best to carry out an asset valuation carried out by a professional firm that knows the market and the industry.

Our activities require updating and training in national and international standards for the correct application that give us the guideline to offer the best quality standards in this type of services.

When is an asset valuation necessary?

Among the needs of the valuation of fixed assets are:

• Third Party Audit
• Transfer Pricing
• Insurable Value
• Commercial or Market Value
• Financial Valuation (International Standards)
• Reasonable Valuation

The market value or commercial value is the value sought for the purpose of valuing an asset for the purpose of exchange, registration or updating, depending on the purpose of the agents or subjects, for the development of asset valuation. It is necessary to give adequate treatment to the data that precedes the fixed assets, such as:

1.- Maintenance, import or installation expenses to which the asset in question has been subjected.

2.- Development, innovation or special components that make a difference with respect to market comparables that can be found within the research and appraisal processes.

Who needs an asset valuation?

• Companies within the industrial turn.
• Accounting firms, auditors, investors or financial entities.
• Management, Industrial Managers, Asset Control Managers or in General.

How is it done?

Several methods are generally used in different scenarios. In order for analysts to offer an opinion with different points of view, more than one method is used.

To facilitate the process of valuing your company's assets, it is recommended that you have the following information:

• financial statements
• Business plan
• Financial projections with a horizon of 5 to 8 years.

Some common asset valuation methods:

Procedure

To facilitate the process of valuing your company's assets, it is recommended that you have the following information:

• financial statements
• Business plan
• Financial projections with a horizon of 5 to 8 years.

Guidelines, regulations and bulletins

In order to properly carry out an asset valuation, it is necessary to use the services of an appraiser (endorsed by the SEP, the Federation of Appraisers Associations, the Mexican Institute of Valuation or the Mexican Academy of Appraisers) who complies with certain ethical and technical requirements, such as:

• The appraiser must act with impartiality, objectivity and independence. This means that the appraiser will always deliver a complete job, without error and in a timely manner, with results independent of the wishes or desires of the client, other people, organizations or public or private institutions, as indicated in the Code of Ethics and Principles of the Federation of Associations of Appraisers.

• Since the knowledge to carry out asset valuation requires a high degree of training, it is necessary for the appraiser to be competent in his or her field of practice; this competence is achieved through study, experience and practice. Considering that the client (and third parties), who do not possess the necessary specialized knowledge, place all their trust in the appraiser, it is incorrect for the appraiser to accept a job that involves the valuation of an asset for which he is not qualified, unless associate or consult with another appraiser who is duly qualified, and must inform the client of all this in advance.

Likewise and according to the regulations NMX-R-081-SCFI-2015, all reports must contain the following data:

• Identification and status of the appraiser
• Identification of the client and other users to whom they are intended
• Finality or purpose of the valuation
• Identification of the good or asset or obligation to be valued
• value basis 
• Valuation Date 
• Valuation Breadth 
• Breadth of research 
• Nature and origin of the base information 
• Assumptions and special assumptions 
• Restrictions on use, distribution or publication 
• Confirmation that the valuation has been committed to this Standard
• Valuation approach and rationale
• Amount shown by the valuation or valuations
• Valuation Report Date

IFRS, IAS and NIF?

In today's world, accounting, financial and legal language can vary widely from country to country. That is why the International Accounting Standards Board and the International Financial Reporting Standards Foundation respectively proposed the NIC (Accounting Information Standards) and the IFRS (International Financial Reporting Standards) to standardize the standards and ways of presenting information at an international level. For its part, Mexico has the NIF (Financial Information Standards) endorsed by the Mexican Council of Financial Information Standards AC 

Despite the fact that the first two regulations are proposed by private institutions and, therefore, no country is obliged to follow them, it is a fact that a good part of the nations have adopted their basic principles. And it is not that they apply them directly, but that they adapt their regulations to fit these precepts. 

The advantage of adhering to these guidelines when carrying out an asset valuation is that it is guaranteed that our information provided by the appraisal expert will be understandable and transparent not only for our territory, but internationally.