Valuation Project and Report Types

Each of the major business valuation standards describes valuation engagements and reports using different terminology and requirements. This leads to plenty of confusion for consumers and providers of valuation services!

The AICPA and the American Society of Appraisers are prominent business valuation standard setters. Appraisers who are members of both organizations are subject to the following three standards.

1. AICPA Statement on Standards for Valuation Services (SSVS) No. 1
2. ASA Business Valuation Standards (BVS)
3. The Uniform Standards of Professional Appraisal Practice (USPAP)

Following is an overview of the project and report types under each. For those familiar with these standards, feel free to skip down to “Final Thoughts.”

AICPA Statement on Standards for Valuation Services (SSVS) No. 1

SSVS No. 1 describes two types of engagements:

1. In a valuation engagement, the valuation analyst estimates the value and is free to apply the valuation approaches and methods he or she deems appropriate in the circumstances.
2. In a calculation engagement, the valuation analyst and the client agree on the valuation approaches and methods the valuation analyst will use and the extent of procedures the valuation analyst will perform in the process of calculating the value of a subject interest (these procedures will be more limited than those of a valuation engagement).

SSVS No. 1 then provides for three types of reports:

1. The detailed report is structured to provide sufficient information to permit intended users to understand the data, reasoning, and analyses underlying the valuation analyst’s conclusion of value.
2. A summary report is structured to provide an abridged version of the information that would be provided in a detailed report, and therefore, need not contain the same level of detail as a detailed report.
3. A calculation report is the only report that should be used to report the results of a calculation engagement. It should state that (1) a calculation engagement does not include all of the procedures required for a valuation engagement and (2) had a valuation engagement been performed, the results may have been different.

Key Points: While a summary report may not include all the verbiage of a detailed report, the underlying analysis should be the same! Anything less than an unrestricted analysis is a calculation and should include appropriate disclaimers about its limited scope.

ASA Business Valuation Standards (BVS)

BVS describes three types of engagements:

1. The objective of an appraisal is to express an unambiguous opinion as to the value of a business, business ownership interest, security or intangible asset which opinion is supported by all procedures that the appraiser deems to be relevant to the valuation.
2. The objective of a limited appraisal is to express an estimate as to the value of a business, business ownership interest, security or intangible asset. The development of this estimate excludes some additional procedures that are required in an appraisal.
3. The objective of a calculation is to provide an approximate indication of value of a business, business ownership interest, security or intangible asset based on the performance of limited procedures agreed upon by the appraiser and the client.

BVS discusses one specific type of report:

1. The comprehensive written business valuation report must clearly communicate pertinent information, valuation methods and conclusions in a logical progression, and must incorporate the other specific requirements of this Standard, including the signature and certification provisions.

Key Points: The standards note that, “a business valuation report may be less comprehensive in content provided that the report complies with the minimum content required by Standard 10.2 of USPAP.” BVS also provides an exception for “preliminary communications of results to a client, reporting on valuation calculations, or reporting on engagements that do not result in conclusions of value.”

The Uniform Standards of Professional Appraisal Practice (USPAP)

USPAP Standard 9 addresses one type of engagement:

1. In developing an appraisal of an interest in a business enterprise or intangible asset, an appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete the research and analyses necessary to produce a credible appraisal.

USPAP Standard 10-2 provides for two types of reports:

1. When the intended users include parties other than the client, an Appraisal Report must be provided.
2. When the intended users do not include parties other than the client, a Restricted Use Appraisal Report may be provided.

Key Points: The minimum content required by Standard 10.2 of USPAP is similar to that of a summary report under SSVS No. 1. If the intended users include anyone other than the client, such as auditors, taxing authorities, or a court of law, a restricted use report would be inappropriate. Anything less than an independent, unrestricted appraisal, such as a calculation, is outside the scope of USPAP and should clearly be labeled as such to avoid misleading users of the analysis.

Final Thoughts

A process of elimination results in the following types of business valuation engagements and reports.

1. The results of an unrestricted appraisal/valuation engagement may be reported in one of three ways: (1) comprehensive, detailed appraisal report, (2) summary appraisal report, or (3) restricted use summary appraisal report.
2. A calculation or other limited analysis performed outside the scope of USPAP is not an appraisal/valuation and should be clearly identified as such to avoid misleading the client and intended users.

Note: Members of the IBA and NACVA, two other organizations that issue valuation standards, may have other terms and requirements to reconcile.

For Further Study: The CPA Journal had an in-depth article on this topic in January 2008 entitled, “Will the Real Business Valuation Standards Please Stand Up?“