"Valuation of Assets and Their Role in the Economy": EU Project Pravo-Justice Supported All-Ukrainian Online Roundtable Event

On 13 August, EU Project Pravo-Justice supported an all-Ukrainian online roundtable event ‘Valuation of Assets and Their Role in the Economy’. Representatives of the Ministry of Finance, ARMA, the State Property Fund of Ukraine, the Chamber of Auditors of Ukraine, the Notary Chamber of Ukraine, the All-Ukrainian NGO ‘Ukrainian Society of Valuators’, lawyers, and national experts of EU Project Pravo-Justice took part in the event.

The event participants discussed the topic of asset valuation and the important role it plays for businesses in obtaining compensation. They also examined the role of entities performing valuation activities and the conformity of national legislation concerning asset valuation with international standards, particularly those of the EU. Furthermore, they paid special attention to discussing the challenges of asset valuation from the perspective of notary activities and property registration.

"Valuation is becoming increasingly important today. The amount of state revenue from the sale of state-owned assets, the amount of taxes paid to the budget, and the amount of compensation that citizens and businesses can potentially receive for losses caused by the armed aggression against Ukraine depend on it," said Iryna Zharonkina, Enforcement and Protection of Property Rights Component Lead of EU Project Pravo-Justice. She also noted that valuators and regulation of valuation activities should play a key role in building a reliable asset valuation system.

According to Oksana Osmachko, Deputy Head of the State Property Fund of Ukraine, valuation sector should be revamped because of the deficient legislation. "Current regulatory framework does not take into account certain relevant changes in international standards," she emphasised.

Svitlana Bulhakova, Director of the Department of Property Valuation, Property Rights and Professional Valuation Activities of the SPFU, stressed the importance of asset valuation and cited statistics. According to her, 60,000 different valuations are performed annually for the banking system alone. Notaries use another 72,000 valuation reports to determine the amount of personal income tax on the sale of property. She also discussed the practical aspects of valuators’ work in wartime and the role of international valuation standards.

"According to international accounting and reporting standards, the fair value of assets should be determined after adjusting their depreciation. Our national legislation stipulates that the book value is the starting price for privatisation and lease of state-owned property. Some inconsistency in these aspects can lead to unpleasant results – significant revenue losses to the state budget," said Svitlana Bulhakova.

Tetiana Prylutska, Deputy Head of the Regional Office of the SPFU in Rivne and Zhytomyr Regions, said that special attention should be paid to ensuring that the residual value of fixed assets is set at fair price.

"This will not only help to determine the value of the assets of enterprises, institutions and organisations that will make up the value of the state-owned assets, but also ensure the accuracy of these financial indicators. Thus, we will be able to have more efficiency in privatising the public sector of the economy, as well as leasing and concessioning property. This will give a green light to the effective management of state-owned property," said Tetiana Prylutska.

Liudmyla Haponenko, Director of the Department of Accounting Methodology for Regulatory Support of Audit Operations of the Ministry of Finance of Ukraine, outlined the position of the Ministry regarding numerous initiatives from undertakings to write off property located in the occupied territories of Ukraine.

"We strive to preserve as much data on the property that was on the balance sheet at the time of the invasion as possible. After all, it is the evidence in criminal cases regarding the occupation of the territories. If we start writing it off, we will lose the trace of what damage was caused to our state or to the persons who had it on their balance sheets," explained Liudmyla Haponenko.

Stanislav Petrov, Deputy Head of the ARMA, highlighted the importance and challenges of asset valuation in the Agency’s activities. According to him, the selection of a valuator of seized assets determines how much money will be received by the state budget of Ukraine from the management. That is why the Agency is constantly working to make this procedure even more transparent.

"The Agency is ready to improve the procedure for selecting valuators to make it even more open and transparent. We already have some practices to discuss among experts in order to take into account all amendments and suggestions," said Stanislav Petrov.

Tetiana Kamenska, Head of the Chamber of Auditors of Ukraine, focused on the revaluation of non-current assets. In particular, she presented an assessment of the correlation between international and national standards in this area. She emphasised that according to national legislation, revaluation is a right, not an obligation.

"The fair value at which fixed assets are revalued is determined based on the findings of a professional valuator’s report. The entire set of fixed assets that includes the revalued item is subject to revaluation. If the valuation was performed at least once, further revaluation as of the balance sheet date will be an obligation. At the same time, the materiality threshold should be taken into account, and revaluation should be carried out only if it is exceeded," said Tetiana Kamenska.

Inna Bernatska, Vice-President of the Notary Chamber of Ukraine, pointed out the challenges of correlation between the concepts of ‘balance sheet’, ‘market valuation’, ‘estimated value’, ‘fair value’, ‘regular price’.

"These legal categories, particularly regarding regular price or fair value, are mostly inconsistent. This negatively impacts various legal relations, both private and public, distorts economic indicators and the overall revenue performance of state budgets, and creates false indicators and wrong foundations for many processes. Accordingly, the terms must be conceptually defined in the future," said Inna Bernatska.

She also noted that plenty of challenges in notary activities are caused by the problems with the concepts of ‘unified property complex’, ‘integral property complex’, and ‘property complex’ in the context of the object of civil legal relations and state registration of property rights, as well as the distribution of value between the components of the unified property complex during registration in the State Register of Property Rights.

Iryna Ivanova, Chairperson of the Board of the All-Ukrainian NGO "Ukrainian Society of Valuators", stressed the importance of involving professionals in the valuation and revaluation of assets.

"Everyone – the state, legal entities and individuals – needs to know the real value of their assets. This assessment should be based exclusively on market data, including the preferences of all market participants. Only professionals can determine this," she said.

Following the All-Ukrainian roundtable event, the participants decided to produce a joint document outlining a list of challenges and proposals on how to address them. Based on this document, a roadmap for further reform of the asset valuation sector may be developed.