The Egyptian Financial Supervisory Authority, led by Dr. Islam Azzam, has issued new Egyptian standards for evaluating machinery, equipment, and infrastructure. This move aims to unify the foundations for evaluating productive and capital assets and increase transparency in financial and investment transactions related to them. The new standards are particularly important for owners of industrial and production companies, as well as companies that rely on equipment, machinery, and infrastructure as a major part of their assets.
The new standards provide a unified framework for determining the value of machinery, equipment, and infrastructure, replacing previous practices that varied from case to case. The standards cover tangible assets used by companies in manufacturing, production, and supplying goods and services, or rented to others, or used for administrative purposes, especially assets expected to be used for long periods. The standards will be used in various transactions, including finance, leasing, project financing, restructuring, and acquisitions.
The new standards are crucial for company owners when they need to determine the value of their assets in the context of a financial or investment transaction. The standards provide a unified approach to evaluating assets, which will help in obtaining financing secured by assets, entering into finance leasing, financing new projects, restructuring, and executing acquisitions. The value of machinery and equipment will no longer be just an accounting number, but an element that affects many financing and investment decisions related to them.
When determining the value of equipment, evaluators consider several factors related to the asset and its usage conditions, including technical specifications, production capacity, remaining life, technical condition, and shutdown costs. Environmental and external factors that may affect the asset are also considered. Economic factors, such as actual or expected profitability, possibility of use in another activity, maintenance status, and technology used, are also taken into account.
The standards identify three main approaches that can be used to evaluate machinery, equipment, and infrastructure: the market approach, the income approach, and the cost approach. The market approach compares the asset to be evaluated with sales of similar or comparable assets to reach an estimated value that reflects market conditions. The income approach estimates the cash flows that the asset can generate, while the cost approach focuses on estimating the cost of replacing the asset or introducing an alternative asset that performs the same function.
To ensure accurate evaluation, company owners need to provide complete and accurate data about their assets, including technical specifications, production capacity, expected life, equipment status, and maintenance records. The Authority has attached a practical application to the standards, outlining steps for inspecting equipment, elements of examination, documentation, and results to be recorded during the inspection process.
The new standards apply to both machinery and equipment, as well as infrastructure, and are complementary to the real estate evaluation standards issued by the Authority. The combination of both frameworks aims to create a comprehensive national framework for evaluation, unifying professional practices, and promoting transparency, neutrality, and objectivity. The Egyptian standards are compatible with international evaluation standards IVS, as well as Egyptian legislative and regulatory frameworks.
Key points
- The new standards provide a unified framework for evaluating machinery, equipment, and infrastructure in Egypt.
- The standards aim to increase transparency in financial and investment transactions related to these assets.
- The standards are compatible with international evaluation standards IVS and Egyptian legislative and regulatory frameworks.
