Some of the major elements required in the statements on standards for valuation services
(SSVS) include:
Professional Competence: A valuation analyst should possess a level of knowledge of
valuation principles and theory and a level of skill in the application of such principles that
will enable him or her to identify, gather, and analyze data, consider and apply appropriate
valuation approaches and methods, and use professional judgement in developing the
estimate of value (AICPA, 2007).
Ownership Information: The valuation analyst should obtain, where applicable and available,
ownership information regarding the subject interest to enable him or her to determine the
type of ownership interest being valued and ascertain whether that interest exhibits control
characteristics (AICPA, 2007).
Valuation Approaches and Methods: Valuation analyst should consider the three most
common valuation approaches: Income approach, Asset Approach, and the Market Approach
(AICPA, 2007). Within each approach, there are several commonly accepted methods that the
valuator may choose to employ when valuating a business.
The AICPA issued this Statement on Standards of Valuation Services (SSVS) with the goal of
improving the consistency and quality of practice among AICPA members performing
business valuations. The increased importance of intangible assets in businesses, and the
related movement toward the reporting of business assets at fair value is what ultimately
forced the AICPA to issue the SSVS (Liberman, 2008).
In comparing the structure of the SSVS and other standards, they all include the rules for the
development of a business appraisal followed by rules for the written appraisal report
(Liberman, 2008).
Financial Statement Analysis and Business Valuation, the subject is helpful to explore various
techniques, tools, and theories that are used to analyze publicly traded companies and perform
fundamental valuations. This course has covered different topics like balance sheet analysis,
industry and SWOT analysis, income statement or cash flow analysis, economic analysis and
prospective analysis, and valuation, along with the financial statement analysis and business
valuation.
Identification of major elements in the statement on standards for valuation services (SSVS)
In the statement on standards for valuation services, many elements have been involved that
play an important role in the financial statement analysis. Some of the major elements
required in the statement on SSVS are objectivity and conflict of interest, establishing an
understanding with the client, and professional competence (Robbins & Taylor, 2008).
objectivity and conflict of interest:
It has been identified that objectivity is the state of mind. Almost all professional services are
required to follow objectivity in their performance as per Rule 102 of the AICPA Code of
Professional Conduct. It means that a valuation analyst must remain objective at the time of
evaluation and must be free from conflicts of interest (Robbins & Taylor, 2008).
establishing an understanding with the client:
It has been identified that a valuation analyst should give emphasis establishing an
understanding with the client. This understanding must include writing that can improve
performance engagement. As per the AICPA, the valuation analyst can also use the oral form
to document appropriate memoranda or notations in the papers. Thus, the valuation analysis
needs to identify the appropriate methods to encounter unforeseen circumstances.
professional competence:
According to the AICPA, the valuation analyst must have knowledge related to theory and
valuation principles as well as a level of skill. This helps the analyst to identify, analyze, and
collect various data as well as to apply and consider the right valuation methods, and
approaches. It also helps in developing the estimate of value by using professional judgment
(Robbins & Taylor, 2008).
The statement on standards for valuation services elements can be compared with the
standards set by other standard-setting bodies. These standard-setting bodies include the US
Financial Accounting Standards Board and the International Accounting Standards Board,
where the SSVS standard sets guidelines to ensure the accurate, consistent, and honest
reporting related to the financial statement without the involvement of the valuation analyst.
Objectivity and conflict of interest are important as the person conducting the valuation needs
to remain objective and do the job they are asked to do without prejudice. Anyone involved
in the valuation or reporting of businesses needs to not have a conflict of interest. This
element reminds of all the big scandals where business owners make their company look
better than it actually is in financial statements. The next element using the work of
specialists. d People that specialize in an area know the information in a much better way than
the average person does and usually have extensive learning and research in the topic.
Another element is assumptions and limiting conditions. This makes sense as market values
change over time and some items of valuation do not have an explicit amount tied to them. It
is more a range of possible amounts that depending on the item's condition, age, public need,
etc. d all are incorporated into the price someone may be willing to pay.
All these elements are standards set in other areas to keep businesses honest in the reporting
of financial statements. d It also helps to create common ground to compare similar companies
when people are looking at investing. Without these standards in place one company may
overvalue themselves while another undervalues.
Professional Competence – In order to provide services to a client one needs the knowledge
and skills for the given task (AICPA, 2007).
Objectivity and Conflict of Interest - "The code requires objectivity in the performance of all
professional services, including valuation engagements" (AICPA.org, 2015).
Establishing understanding with the client - all involved know the scope of the project and the
expectations that are to be reached. The analyst should prepare an engagement letter outlining
an understanding with the client.
The SSVS is created for AICPA members to make sure the company can provide the same
level of service to all clients. The core standards are the same across most standard-setting
bodies. d
AICPA.org. (2007, June). Statement on standards for valuation services (VS Section 100).
AICPA.org. Retrieved from https://www.aicpa.org/resources/download/statement-on-
standards-for-valuation-services-vs-section-100
Robbins, W. A., & Taylor, G. (2008). SSVS 1: Applying new standards for CPAs providing
valuation services. The CPA Journal, 78(6), 54.
AICPA.org. (2007, June). Statement on standards for valuation services (VS Section 100).
AICPA.org. Retrieved from https://www.aicpa.org/resources/download/statement-on-
standards-for-valuation-services-vs-section-100
