3 July 2023
Valtech Valuation highlights the vital role of Certified Public Accountants (CPAs) in ensuring compliance with statutory standards for credit loss assessments.
Hong Kong-based valuation firm, Valtech Valuation (“Valtech”), has recently emphasized the increasingly crucial role played by Certified Public Accountants (“CPAs”) in guaranteeing full compliance with relevant statutory standards during the preparation and review of expected credit loss (“ECL”) assessments and other valuations. This recognition comes as Valtech participated in a discussion forum organized by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) in April 2023, focusing on common deficiencies found in valuation-related audits, with particular emphasis on ECL assessments.
During the forum, representatives from Valtech shared valuable insights derived from their experience with clients, auditors, and business partners. Max Tsang, Director of Valtech, outlined prevalent issues observed in ECL assessments, including reliance on outdated or insufficient data, lack of proper calibration, inadequate consideration of risk factors, and insufficient documentation. These issues lead to a lack of transparency in the estimation process. Tsang highlighted Valtech’s commitment to remaining at the forefront of the latest developments in statutory standards and seasonal updates to ensure strict adherence and shared the latest interpretations with CPA practitioners.
Valtech’s valuation team benefits from the expertise of highly qualified professionals, including Chartered Financial Analysts (“CFA”), Financial Risk Managers (“FRM”), and CPAs. Through effective communication and collaboration with audit teams, Valtech aims to enhance the overall quality and reliability of assessments by evaluating the reasonableness and appropriateness of ECL estimates, methodologies, and assumptions.
Moreover, heightened scrutiny from the Hong Kong Exchanges and Clearing Limited (“HKEX”) regarding ECL has been observed. HKEX has increased its inquiries into detailed valuations, relevant assumptions, and the basis for ECL assessments for both listed companies and those undergoing initial public offerings (“IPOs”).
Marvin Wong, Director of Valtech, expressed confidence in Valtech’s CPAs’ ability to assist companies in selecting and implementing appropriate measurement methods for ECL assessments, aligning with the guidance provided by the International Financial Reporting Standards. Valtech’s expertise lies in assessing elements such as the probability of default, loss given default, and exposure at default, ensuring their adequate representation in ECL assessments. Wong believes that this meticulous approach yields more accurate measurements and recognition in ECL assessments, effectively addressing the concerns of regulatory authorities on behalf of Valtech’s clients.
The significance of ECL extends beyond Hong Kong, impacting the financial assets of not only banks but also other corporate entities worldwide, particularly with the recent interest rate hikes in major economies. Valtech has assisted over 100 clients in building ECL models following applicable accounting standards, such as ASC 326 or IFRS 9. Their approach involves using reliable data sources, incorporating forward-looking information, regularly updating ECL estimates, and maintaining proper documentation throughout the estimation process.
In light of the growing demand for valuation and ECL evaluation services, particularly in the context of IPOs in Hong Kong, Singapore, and the United States, Valtech, headquartered in Hong Kong, is actively seeking aspiring CPAs in Singapore to extend its support to local clients.
As Valtech continues to play a pivotal role in the valuation industry, their recognition of CPAs’ importance in ensuring compliance with statutory standards and their commitment to providing accurate and transparent ECL assessments position them as a leading firm in the field.
