Abstract
Most companies listed on the stock exchange hold investments in other companies, which are usually trading companies or companies that hold an investment in other companies. These investments can be accounted for using the equity method, consolidated in terms of IFRS 10, or measured at fair value in terms of IFRS 9. With the introduction of IFRS 9, unlisted and listed investments need to be measured at fair value determined in terms of IFRS 13. The question is whether IFRS 13 provides sufficient guidelines for entities to value unlisted equity shares at fair value.
The objective of this dissertation was to determine the appropriateness of the valuation methods used to determine the fair value of an unlisted equity investment for financial reporting purposes. The research objective was achieved through a two-step approach; firstly, by performing a comparative analysis of the valuation theory prescribed by valuation institutions (IVSC and IPEV) and guidance in IFRS 13, and then secondly, through content analysis of the fair valuation of unlisted equity investments in the company financial statements of JSE listed companies. The sample population of the research consisted of companies included in the JSE Top 40 Index and JSE Financial 15 index that had a shareholding in unlisted equity investment.
An analysis of the valuation theory, as prescribed by the valuation institutions, revealed that there were similarities and differences in the guidance provided for the valuation of unlisted investments. In summary, the IVSC and IPEV provided more guidance on the valuation of the unlisted investments and their guidance could play an important role in assisting the valuation of unlisted investments for financial reporting purposes. In contrast, IFRS 13 provided more guidance on the definition and nature of the fair value.
Through content analysis of the financial statements of JSE-listed companies, it was revealed that some JSE-listed companies do not disclose sufficient information as required by IFRS 13. However, it was also revealed that most companies on the JSE value listed their investments in terms of robust and appropriate valuation methods. There were a few instances where some companies included in the sample population
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did not disclose the valuation techniques they used as prescribed by IFRS 13. Some inputs that the researcher deemed as significant were also not disclosed.
The overall outcome of this research suggests that preparers of financial statements could benefit from the use of the information published by IPEV and IVSC for the valuation of unlisted investments for financial reporting purposes. It is advisable to have similar research conducted in other countries to allow for comparisons.