What’s new in the Red Book supplement

RICS has led the way in recognising the importance of valuation standards and their effective implementation, establishing the Assets Valuation Standards Committee in 1974. Now more than ever, appropriate valuation standards and their effective regulation are vital to promote and sustain public confidence and trust in the valuation process. Uniform valuation standards help to reduce investment risk, increase confidence in financial reporting, and provide a consistent approach to portfolio and asset valuation.

Originally, the RICS Red Book was largely concerned with the UK market, but from an early date it became progressively more global in reach, and UK-specific material now supplements the global core text. Other jurisdiction-specific supplements have also been developed in recent years, reflecting the fact that RICS professionals operate across more than 140 countries, in many of which the Red Book is a respected reference work.

Since 2012, the Red Book global edition has formally adopted the International Valuation Standards (IVS) published by the International Valuation Standards Council (IVSC), RICS having been a major contributor to the development of these standards over many years. The Red Book not only implements the IVS, it also supplements them with additional standards and extensive guidance for RICS members. This is why the Red Book continues to be such an important publication.

Published for many years in a single-volume global and UK edition for the convenience of members, the Red Book was in January 2014 split into two volumes, with the UK material still firmly a supplement to the global. The UK-specific content has never been free-standing.

The new supplementary UK material in the RICS Valuation – Professional Standards, was introduced in November 2018, taking effect from 14 January 2019, following an extensive public consultation.

The first point that this document seeks to stress is that it is just a supplement to the global edition, because it has sometimes been mistakenly assumed that the UK material is self-contained. This has never been the case, and the new edition makes that clear.

The second key point is that the format of the new edition has substantially changed by comparison with the 2014 (revised 2015) edition. The division between mandatory standards, that is UK professional standards (PS) and valuation technical and performance standards (VPSs), and advisory guidance, the UK valuation practice guidance – applications (VPGAs), is again intended to be clear. The balance between mandatory material and advisory guidance has been adjusted; the former accounts for less than ten per cent of the new volume and the latter rather more than 90%. This redresses the balance in the current (2014, revised 2015, edition), where there is explanatory material in the present standards that, although designed to be helpful, cannot sensibly apply in all cases. The new format reinforces the supplementary character of the UK material; most of the mandatory standards are to be found in the global edition.

The Basis for Conclusions document published alongside the UK supplement explains the new content in detail, including the various changes made because of the responses to the consultation draft. All members should read the ‘structure’ section within the Basis for Conclusions, which explains exactly how the division between standards and guidance has been reset. One of the key developments is to divide some of the existing guidance into a larger number of individual sections that should make them more accessible. There has been substantial reworking of the material on valuation for financial reporting, with greater differentiation between UK Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) requirements.

Members will also notice some changes around the secured lending material, but for the moment the existing RICS residential mortgage specification continues, pending agreement of further refinements with stakeholders including trade association UK Finance and the Building Societies Association.