DB3
Discuss one USPAP (Uniform Standards of Professional Appraisal Practice) Business Valuation
Standard and how that standard may apply to a given circumstance in a business valuation
engagement.
USPAP Standard Application
Jason D. Roseberry
Liberty University
BUSI 534: Business Valuations
Dr. Richard Fendler
September 25, 2020
USPAP Standard Application
The Uniform Standards of Professional Appraisal Practice (USPAP) standards of
valuation provide ten guidelines practices that should be applied in any valuation engagement,
which improves the quality and consistency of the business valuation industry (Hitchner, 2017).
USPAP standards must be observed for any transactions that are regulated by the Federal
Reserve Board, Federal Deposit Insurance Corporation, Officer of the Comptroller of the
Currency, Office of Thrift Supervision and National Credit Union Administration (Hitchner,
2017). Additionally, many certifying appraisal organizations require adherence to USPAP to
obtain and maintain business valuation credentials. Even if there are instances where following
DB3
Discuss one USPAP (Uniform Standards of Professional Appraisal Practice) Business Valuation
Standard and how that standard may apply to a given circumstance in a business valuation
engagement.
USPAP standards were not required, doing so would still be considered a best practice for
business valuation analysts.
Competency Rule Overview
Of the ten standards, the competency rule is potentially one of the most important for
practitioners to comply with to ensure the integrity of those valuation engagements, as well as
the integrity of the industry. Simply put, the competency rule requires professionals to possess
the knowledge and experience necessary to competently complete any accepted assignment or, if
shortfalls exist, requires the disclosure of the lack of competency (Hitchner, 2017). The rule also
requires that any shortfalls are addressed by any steps necessary to ensure that the assignment is
completed competently even if that involves hiring another professional that does possess the
right experience, otherwise the engagement must be declined (Hitchner, 2017). If an appraiser
accepts an engagement and subsequently determines that there is a deficiency in knowledge, the
appraiser must notify the client and take all necessary steps to competently complete the
assignment, while also documenting in the report the lack of knowledge and steps taken to
ensure the assignment was completed competently (ASA, 2019). If the assignment is unable to
be completed competently by the appraiser, the appraiser must withdraw from the assignment
(ASA, 2019).
Standard in Practice
In many business valuation engagements, real estate will be owned either directly by the
business entity or a related entity and accurately estimating the value of the real estate is an
important part of the overall value depending on the purpose of the report. It frequently occurs
that a certified valuation professional is not a certified real estate appraiser, which must be
DB3
Discuss one USPAP (Uniform Standards of Professional Appraisal Practice) Business Valuation
Standard and how that standard may apply to a given circumstance in a business valuation
engagement.
disclosed to clients in compliance with the competency rule. The options for the valuation
professional are either to disclose the deficiency and acquire the necessary competency to
complete the assignment or to withdraw (Roach, 2017). Fortunately, the competency rule allows
an analyst the flexibility to acquire the required knowledge personally, by self-learning, or by
bringing in others who do have the required knowledge or experience (Roach, 2017). In the case
of appraising real estate, the analyst has the option to personally become a certified real estate
appraiser or to hire a professional real estate appraiser to provide that specific competency,
otherwise the analyst must withdraw from the assignment. Generally, analysts will choose to hire
a real estate appraiser as it is the most efficient option in an otherwise challenging assignment
(Hitchner, 2017).
Conclusion
USPAP standards ensure that valuation professionals operate with integrity and deliver
high quality, reliable and competent valuation reports. The competency rule exists to ensure that
analysts only take on engagements which they are qualified to competently complete while also
allowing room for the attainment of any lacking knowledge, either personally or by enlisting
assistance, to competently complete an assignment. The USPAP competency rule echoes the
Bible, which instructs to “Do your best to present y ourself to God as one approved, a worker
who has no need to be ashamed, rightly handling the word of truth” (English Standard Version
Bible, 2001, 2 Timothy 2:15).
References
English Standard Version Bible. (2001). ESV Online. https://esv.literalword.com/
DB3
Discuss one USPAP (Uniform Standards of Professional Appraisal Practice) Business Valuation
Standard and how that standard may apply to a given circumstance in a business valuation
engagement.
Hitchner, J. (2017). Financial valuation: Applications and models (4th ed.). Hoboken, NJ: Wiley.
ISBN 978-1-119-28660-8
Roach, S. (2017, November 28). Filling in the gaps with uspap’s competency rule. International
Society of Appraisers. https://www.isa-appraisers.org/about/blog/details/323/filling-in-
the-gaps-with-uspap-competency-rule
Robinette, L. (2019). [Lecture notes on 2020 uspap updates]. Collateral Evaluation Associates,
Inc. http://www.appraisers.org/docs/default-
source/event_doc/2019_iac_presentation_robinette---uspap-updates.pdf?sfvrsn=2
Response 1:
Thank you for your overview of USPAP standards and the in-depth discussion about
Standard 3, James. Standard 3 deals with appraisal review and can be described as a tool to
provide checks and balances to appraisers in an effort to remove any appraiser bias, which is
done by promoting thorough due diligence, reporting transparency and accountability of both the
original appraiser and the reviewing appraiser. According to Hitchner (2017), Standard 3 requires
that a reviewing appraiser “must identify the problem to be solved, determine the scope of the
work necessary to solve the problem, and correctly complete research and analysis to produce a
credible appraisal review” while taking care to “communicate each analysis, opinion, and
conclusion in a manner that is not misleading.” The standard provides guidance for both the
development of an appraisal report and for the review of a completed appraisal report. In effect,
Standard 3 provides for quality control of appraisal reports and business valuations (Appraisal
Institute, 2018).
DB3
Discuss one USPAP (Uniform Standards of Professional Appraisal Practice) Business Valuation
Standard and how that standard may apply to a given circumstance in a business valuation
engagement.
USPAP provides that the original appraiser must act with integrity and confidence while
demonstrating competency and diligently work to build a thorough, un-biased and well-
supported appraisal report (Hitchner, 2017). Per Standard 3, the job of a reviewing appraiser is
twofold. First, the reviewing appraiser must determine if the original appraisal analysis is
complete, accurate, adequate, relevant and reasonable (Young, n.d.). Second, the reviewing
appraiser must determine the completeness, accuracy, adequacy, relevance and reasonableness of
the appraisal report (Young, n.d.). In short, the reviewing appraiser is responsible to check the
analytical work of the original appraiser and then to check that the supporting analysis is clearly
and completely communicated in the resulting report.
Once the review is complete, the reviewing appraiser has two possible courses of action.
If the reviewing appraiser agrees with both the original analysis and the resulting appraisal
report, the only action is to sign the appropriate certification of the original appraisal per Rule 3-
5 (Hitchner, 2017). In the event of a disagreement regarding the analysis or final report, the
reviewer has several options to be considered. The reviewer may simply state suggested
corrective action to be taken at the client’s discretion or act on the client’s behalf to work with
the original appraiser to remedy any deficiencies (Chapter 2, 2015). Also using the original
analysis and report, the reviewer may correct any noted errors showing the amended
calculations, with or without additional commentary, or develop a new opinion of value with the
same scope of work (Chapter 2, 2015). Alternatively, the reviewer may make corrections and
express an opinion of value developed using a different scope of work or, regardless of the
original result, develop a completely new and independent opinion of value using a different
scope of work (Chapter 2, 2015).
DB3
Discuss one USPAP (Uniform Standards of Professional Appraisal Practice) Business Valuation
Standard and how that standard may apply to a given circumstance in a business valuation
engagement.
In summary, Standard 3 provides the opportunity for appraisal process and reporting
quality control, as well as an opportunity to correct any errors, which is in the best interest of
appraisers, clients and the entire valuation industry. Quality research, report writing and
independent review are key to establishing and maintaining credibility, which aligns with the
Bible’s instruction of “Sanctify them in the truth; your word is truth” (English Standard Version
Bible, 2001, John 17:17).
References
Appraisal Institute. (2018, February 1). Common errors and issues in review.
https://www.appraisalinstitute.org/assets/1/7/exp-commonerrorsissues-review.pdf
Chapter 2. (2015, May 20). https://slideplayer.com/slide/4675645/
English Standard Version Bible. (2001). ESV Online. https://esv.literalword.com/
Hitchner, J. (2017). Financial valuation: Applications and models (4th ed.). Hoboken, NJ: Wiley.
ISBN 978-1-119-28660-8
Young, J. (n.d.). Appraisal review, uspap and clarity. American Society of Appraisers.
https://www.appraisers.org/docs/default-source/discipline_arm/appraisal-review-uspap-
and-clarity-by-jack-young.pdf
Response 2:
Thank you for your review of Standard 9 and discussion of how it works in application,
Andrew. Standard 9 focuses on the requirements to develop a credible appraisal, which is an
DB3
Discuss one USPAP (Uniform Standards of Professional Appraisal Practice) Business Valuation
Standard and how that standard may apply to a given circumstance in a business valuation
engagement.
appraisal that is thorough, free of omissions and free of errors (Hitchner, 2017). Generally,
Standard 9 directs appraisers in the steps that must be taken to develop a thorough and credible
appraisal, which should be the end-goal of any professional valuation analyst.
Rule 9-1 provides that appraisers must follow recognized approaches without committing
errors (ZG). Rule 9-2 requires an appraiser to fully identify and define the scope of work, with
specific points to identify (ZG). Rule 9-3 discusses the highest and best use regarding premise of
value while 9-4 dictates that an appraiser must analyze historical results and future prospects of
the business (ZG). Rule 9-5 discusses how an appraiser must arrive at a conclusion of value and
asserts that the result must be a combination of mathematical calculation and qualitative
reasoning (ZG).
Standard 9 effectively provides that appraisers should dutifully work to follow recognized
procedures to produce credible and error free work. The work should address historical
performance and future potential of a business with specific guidelines for arriving at a
conclusion of value, which should include specific detail regarding the appraiser’s thought
process. The standard is intended to ensure that clients are employing both trustworthy and
industrious professionals who will work energetically and enthusiastically to produce accurate
and useful reports.
Ultimately, the quality of the valuation report reflects on the professional that developed
it. Applying the accepted methods and procedures for analyzing a business and reporting the
opinion of value is not only a matter of personal pride, but an exhibition of personal and
professional integrity. Accepting an engagement commits an appraiser to the client and implies
that the appraiser is committed to diligently working to provide the most detailed and accurate
DB3
Discuss one USPAP (Uniform Standards of Professional Appraisal Practice) Business Valuation
Standard and how that standard may apply to a given circumstance in a business valuation
engagement.
report of value to the client, regardless of the report’s purpose. Failure to do anything other than
provide a thorough and credible report is unacceptable and has the potential to damage both the
appraiser and the client.
The Bible teaches that “Unequal weights and unequal measures are both alike an
abomination to the Lord” (English Standard Version Bible, 2001, Proverbs 20:10). The lesson is
that all trusted professionals, especially valuation analysts, must carefully work to ensure
accurate analysis and reporting of their findings so that clients and colleagues can have
confidence in their work product. Anything short of excellence and accuracy in business
valuations in unacceptable and could result in major client losses if the purpose of the report is
for transactional purposes. An appraiser must take all necessary steps to create a credible report
and no other effort is acceptable.
References
English Standard Version Bible. (2001). ESV Online. https://esv.literalword.com/
Hitchner, J. (2017). Financial valuation: Applications and models (4th ed.). Hoboken, NJ: Wiley.
ISBN 978-1-119-28660-8
Steffen, B. (2014, January 21). An overview of the uspap.
https://gavinsolmonese.com/wp-
content/themes/gavinsolmonese/assets/assets/articles/An_Overview_of_the_USPAP.pdf
