Valuers seek suspension of draft valuation policy amid calls for review

Valuers have rejected the government's plan to start valuing national assets this month, using the proposed Public Assets Valuation Policy Framework for the public sector.

The proposed policy is expected to shift the government to an accrual-based financial reporting system by 2027.

The system will help move from cash-based accounting to record revenues and expenses when earned and incurred, respectively.

The memorandum approved by the cabinet in March 2024 approves the roadmap to transition from cash-based accounting to the International Public Sector Accounting Standards (IPSAS) accrual basis for three years, commencing in the financial year 2024-2025 and ending in 2026-2027.

The exercise is supposed to begin after the framework has passed through public participation on asset valuation and the accounting policy.

The State says the existing institutional framework does not provide a harmonised and standardised valuation framework capable of addressing emerging and complex categories of public assets such as infrastructure projects, mining resources, intellectual property, ICT infrastructure, heritage assets, biological assets, financial instruments and concessioned public assets.

It says the proposed policy framework, which is with the taskforce committee, is aligned with Vision 2030, the Medium-Term Plan V, and the Bottom-Up Economic Transformation Agenda.

However, valuers through their lobby, the Valuers Society of Kenya, want the proposed framework suspended and subjected to fresh review by professional bodies. In a petition sent to Chief of Staff and Head of Public Service Felix Koskei, valuers say they have reviewed the joint cabinet memorandum and noted some concerns.

Among the concerns is that the institutional and professional architecture proposed in the memorandum is “legally disruptive, professionally regressive, duplicative and potentially inimical to the public interest.”

They note that the memorandum proposes the establishment of a Public Sector Assets Valuation Board (PSAVB), consequential amendments to the Valuers Act, Cap. 532, designation of the Cabinet Secretary for the National Treasury as responsible for matters relating to valuers and public sector valuation policy, and harmonisation of existing valuation frameworks under a new public-sector policy regime.

“Taken together, these proposals risk dismantling coherent statutory regulation of valuation in Kenya and creating a parallel system in which persons who are not professionally trained, registered and accountable as valuers may effectively undertake or determine valuation work,” said Mwenda Makathimo, patron of the Valuers Society of Kenya.

“We therefore petition your office to intervene before the proposals are approved or implemented in their present form.”

The valuers say the proposals risk de-professionalising valuation and opening valuation practice to persons who are not trained or registered as valuers.

“The memorandum identifies engineers, geologists and other officers as persons empowered under sectoral instruments to undertake aspects of public asset valuation and treats this fragmentation as a basis for a new architecture,” said Makathimo, a land expert and executive director of Land Development and Governance Institute.

“This confuses technical input concerning an asset with professional responsibility for an opinion of value. Engineers, geologists, accountants, quantity surveyors, actuaries and other specialists may provide essential expert inputs.”

Kenya, he says, already regulates that function under the Valuers Act, Cap. 532, and knowledge of an asset is not synonymous with competence to value it. They say the proposed PSVAB duplicates and undermines the Valuers Registration Board (VRB).

The memorandum proposes establishing PSAVB to provide oversight, quality assurance, harmonisation of valuation standards, policy guidance, capacity building and monitoring across the public sector.

Valuers, however, say the VRB is the statutory regulator established under the Valuers Act to regulate the activities and conduct of registered valuers.

They argue that the proposed PSAVB is assigned oversight, quality assurance, harmonisation of valuation standards, policy guidance, capacity building, monitoring and evaluation of public asset valuation practice, functions which substantially intrude into professional regulation and standards oversight.

“Creating a second board does not cure fragmentation; it institutionalises fragmentation and creates uncertainty over jurisdiction, licensing, discipline, professional accountability and standards,” said Makathimo.

On the proposed transfer of policy responsibility for valuers to the National Treasury, they say it is neither adequately justified nor institutionally neutral.

They argue that valuation is not merely an accounting or fiscal reporting function but serves compulsory acquisition, rating, land administration, secured lending, insurance, litigation, investment, financial reporting, asset disposal, privatisation and other purposes.

“Moving professional policy responsibility to the National Treasury amounts to conflicts of interest as the Treasury is in charge of budgeting, making payments and procurement. The addition of a valuation role would amount to a lack of separation of roles and accountability,” says Makathimo.

The valuers say the memorandum conflates accounting measurement requirements with forming another valuation professional standard, noting that IPSAS determines recognition, measurement and financial reporting requirements for public sector entities.

The International Valuation Standards (IVS) govern the performance and reporting of valuation assignments, making the frameworks complementary and not substitutes or competing systems.

The valuers also say the premise that Kenya lacks standards capable of addressing complex or emerging asset classes is overstated, adding that international valuation practice extends beyond land and buildings.

Makathimo says a geologist may advise on mineral resources, an engineer on plant or infrastructure and an accountant on financial information, and such specialist input does not, by itself, confer professional competence to sign or assume responsibility for an opinion of value.

Valuers argue that the proposed architecture creates an avoidable risk to independence and public confidence.

They say the National Treasury is a major user of public asset values for financial reporting, fiscal management, transactions and asset management.

“Placing policy control, valuation coordination, standards harmonisation and oversight within the same institutional chain may create actual or perceived conflicts between fiscal or reporting objectives and the valuer’s duty to provide an independent opinion. Valuation governance should protect professional independence, transparent assumptions and accountability for conclusions,” says Makathimo.

The valuers say the financial implications of the huge amount expected to be spent on the valuation exercise require stronger justification.

The memorandum estimates Sh6 billion for valuation of public assets over three years and an additional recurrent expenditure of Sh500 million annually for the proposed PSAVB.

They say the government should first demonstrate why the existing VRB, the office of the Chief Government Valuer, the Directorate of Valuation, asset-owning entities and existing public finance institutions cannot be strengthened and coordinated, saying a parallel board should not be the default response to a coordination problem.

The valuers say the consultation process is inadequate for proposals that fundamentally alter a statutory profession.

“Reform of this magnitude requires demonstrable, structured and meaningful engagement with VRB, professional bodies representing valuers, registered and practising valuers, universities offering valuation education, county governments and major users of valuation services. Consultation must inform the policy choice; it should not merely validate a predetermined institutional design," says Makathimo.

The direction of global valuation practice, they say, is towards stronger professional competence, independence, transparency and internationally comparable standards and not dilution of professional responsibility.

They add that IVS provide a principles-based framework intended to promote consistency, comparability and transparency across assets and liabilities.

International public sector accounting standards also provide measurement requirements responsive to the characteristics of public-sector assets, including assets held primarily for operational and service-delivery purposes and argue that the particular characteristics of public service assets can therefore be addressed within internationally developed accounting and valuation architecture.

“A public-sector-specific measurement basis does not mean that unregistered persons should become valuers, nor does it require a parallel professional regulator,” says Makathimo.

The valuers say they are particularly concerned by the institutional implications of relocating valuation policy responsibility to the National Treasury, saying the Chief Government Valuer and the government valuation function are not merely accounting support functions.

Among the ten demands, they want Koskei to immediately suspend further approval and implementation of the proposed Public Assets Valuation Policy Framework in its present form, pending comprehensive professional, legal and institutional review.

They also want Koskei to convene an urgent consultative forum involving the professional bodies, including the Valuers Registration Board, the Valuers Society of Kenya, the Institution of Surveyors of Kenya through its Valuation and Estate Management Surveyors Chapter, the Chief Government Valuer and the Directorate of Valuation, registered and practising valuers, relevant universities and other key public-sector stakeholders.

The valuers are also calling upon Koskei to reject any provision, policy or legislative amendment that permits a person who is not duly registered and licensed under the Valuers Act, Cap. 532 to undertake, sign, certify or assume professional responsibility for a valuation, irrespective of whether the asset is public or private.