Asset Valuation Standards: A Functional-Institutional Approach

The article focuses on the elaboration and research of the real nature of standards of value. The methodology chosen for this paper is mainly based on the late institutional economics and European theories of the economic and legal order, such as the German ordoliberalism. It is argued that standards (International Valuation Standards, European Valuation Standards, IDW S 1 etc.) are not determined by the stage of development of economic theory, but rather by valuation "best practices". The standards of value, which are normatively defined, first enable us to connect the valuation and the valuation purpose. The value standard or the contained value basis establishes the connection between the value and the valuation purpose, and make the estimated value relevant, or subject to the valuation purpose. Further, the purpose of the standards as a set of rules is examined, and the entities involved in the formulation of the standards and its influence are closely connected. There were identified three driving forces shaping the current scope and status of both international and national valuation standards: firstly, the state and legislation (hard and soft law), secondly, science providing a methodological background, and lastly, joint interest groups, such as appraisers and appraisers' associations who are generally responsible for the final versions of the standards. Since Czech commercial law does not precisely address all possible market transactions and applicable standards of value, it is argued that the International Valuation Standards can and should also be applied in the Czech Republic, since their purpose would show its effect in the Czech Republic, too. Other inspiration for business valuation can be found in the German IDW S 1 standard.