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Calling all techies
27 September 2007
A fair value is that at which the buyer and seller will trade. But with no buyers, how do accountants value banking clients' stocks and securities?
"Present market conditions have reduced the amount of information available to make valuations," says Caroline Britton, a partner in Deloitte's City financial services team. "People have to rely more on making considered judgements and challenging clients on figures – you can't just plug numbers into a spreadsheet when the numbers aren't available."
Demand for technical types in financial services teams has risen, observes Clare Keniry of Hays Accountancy & Finance: "Firms want people who can grasp and apply theory in a market context, and make a reasoned argument for their valuations," she says. "The numbers are huge – getting it wrong could have severe consequences, so they'll pay to get the best people. ACAs with several years post-qualified experience may earn a package of £65k-£80k in a technical valuations role in London."
A sizeable proportion of valuations teams have corporate treasury backgrounds – sometimes from banks but mostly from commerce and industry. "A good mix of audit skills and treasury management knowledge is what clients value," says Britton.
And switching into practice appeals to those who enjoy the technical aspects of accounting but want a variety of challenges. "Candidates who find routine treasury work in a company rather humdrum like the idea of working in a client-facing role," says Keniry. "It's an opportunity for them to flex their intellectual muscle in a more taxing environment – and be rewarded well."
While it is true that it is really difficult to value financial instruments under present market conditions (i.e., the sub-prime crisis and Soc Gen scandal), I still think valuing these instruments using quoted rates in Reuters or Bloomberg is still the way to go. However, given current market conditions, these rates may not be deemed observable and thus can not be construed to be a rate or price at which an arms-length transaction can be reached.
To address these, fair valuation adjustments can be made by adding up a calculated spread over quoted market rates to arrive at an acceptable fair value. The procedures and principles behind such fair value adjustments should be documented so that it can stand scrutiny especially from auditors.
Such valuation procedures will even be critical for financial instruments that are dealt as accounting hedges. Under IAS 39, hedging relationships, valuation methodology is one of the items required in hedge documentation.
I have worked as an FX trader, Treasury risk management consultant for an accounting firm, Treasury settlements manager and product controller in my 14 year banking career. This line of work is very challenging.
Product Controller 31 Jan 2008
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