Abstract: due diligence list for accurate appraisals. Most experienced valuation service providers will tell you that applying appraisal theory to real-world practice can be extremely confusing. However, as with any emerging high-growth service, it is vital that CPAs maintain their characteristic performance standards. profession's boom in business valuation (BV) services in the past decade means more CPAs in public practice and in business and industry have to know BV to stay on top. Different valuation methods, literally hundreds of sources of financial and strategic information, and various state and federal valuation regulations make this a complex occupation. As daunting as this all sounds, there are a number of basic tenets of business appraisal that will help CPAs implement BV application with a high level of quality control and skill. 1 UNDERSTAND THE APPRAISAL ASSIGNMENT First and foremost, you must fully understand the nature of the assignment to ensure it is the right fit for you. As Gary Trugman, CPA, notes in his book, Understanding Business Valuation, appraisers can't take on every engagement that comes their way. It is therefore very important that each aspect of a BV assignment be clearly stated in the engagement letter. These points will form the basis of the final valuation report. The appraiser must be crystal clear about what he or she is appraising, both in the engagement letter and in the valuation report, says Nancy Fannon, CPA, ABV, CBA, BVAL, partner in the American Business Appraisers division of Baker, Newman and Noyes in Portland, Maine, and member of the AICPA's BV committee. A misunderstanding early in the engagement often leads to an unsatisfied client. Spelling it all out in the engagement letter ensures that everybody understands what's being appraised and the standard of value the CPA is using. 2 COMPLY WITH COMPETENCY AND INDEPENDENCE STANDARDS Business valuation is more than just review and analysis of financial statements. CPAs in public practice offering BV as a client service must conform with several standards on professional competence; due professional care; planning and supervision; and communication with clients, including the AICPA Statement on Standards for Consulting Services (SSCS). Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Standards Board define the minimum independence and competence standards necessary for reporting to federal regulatory agencies. Although AICPA members are not required to follow USPAP, these standards strengthen the quality of BV services. Business appraisers should review USPAP and pay particular attention to Standard Rule 9-4, which includes guidelines that are similar to those found in the widely recognized IRS Revenue Ruling 59-60 (on valuations). Valuations prepared for estate and gift taxes, divorce and shareholder disputes often require the testimony of expert witnesses. CPAs who provide such testimony will likely face tough challenges to their credentials and conclusions from opposing attorneys. Steven F. Schroeder, JD, CBA, of Economic and Valuation Services of Marysville, California, says the need for thorough and impartial work cannot be overemphasized: The successful demonstration by the expert witness of competence and credentials in the event of a challenge is essential to protecting the admissibility of the opinion in court. 3 WATCH THE MARKET Because business valuation involves financial calculations, accountants naturally want to begin the process by analyzing a target's financial statements. Wise appraisers use spreadsheets, but they do not start their analysis with them, nor are they slaves to them. What happened to the business in the past may not accurately indicate what it will do in the future. Financial statements show the results or a company's operations but not their underlying causes. …
Publication Year: 2000
Publication Date: 2000-03-01
Language: en
Type: article
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Cited By Count: 1
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