Working in audits, I find that the GASB and FASB standards for nonprofit and governmental
audits are much the same as the valuation standards. I think there are a few that are very
important.
Professional competence is being sure that you can complete the job you are required to do.
Anyone who hires a professional for a service wants to make sure they are hiring a person
who can do the job they need properly. Hiring a contractor to build a house is the same as
hiring an auditor or a valuation consultant, you want to make sure that they can perform the
necessary tasks to complete the job the best that it can be done.
Another standard that is similar in valuation and audits is being independent of the valuation
or audit. When writing a report for value, the person performing the service should not have
any vested interest in the business. Much the same with an audit, if the person writing the
report is involved with the business, they may feel pressure to skew the data one way or
another for their own good.
Establishing understanding with the client is also important so all involved know the scope of
the project and the expectations that are to be reached. The use of an engagement letter is a
good practice to list the services that will be performed and then add items as necessary for
each project and have both parties sign and agree on all items.
There are many elements required in the statement on standards for valuation services
(SSVS). Here are just a few:
Professional Competence – Simply put, anyone engaging in valuations should have the skill
and knowledge to do so. The valuation analyst will need to identify, gather, and analyze data
to determine the appropriate valuation method to use. “The valuation analyst must determine
if they can reasonably expect to complete the valuation with professional competence by
considering the following: subject entity and its industry, subject interest, valuation date,
scope of the valuation engagement, and governmental regulations or other professional
standards that apply to the subject interest.” (AICPA, 2007)
Nature and Risk of the Valuation Services – In order to determine the nature and risk, the
analyst should factor “the terms of the valuation engagement; identity of the client; nature of
the business interest and ownership rights in the business, security, and intangible assets
being valued, including control characteristics and the degree of marketability of the interest;
procedural requirements of a valuation engagement and the extent of any limitations imposed
by the client or circumstances; the use of and limitations of the valuation report; and any
obligation to update the valuation report in the future.” (Robbins & Taylor, 2008)
Objectivity and Conflict of Interest – The analyst should always remain objective and not
engage in any activity that would pose as a conflict of interest. The analyst must always
remain impartial while displaying integrity and honesty.
Establishing an Understanding with the Client – The analyst should prepare an engagement
letter outlining an understanding with the client. This written document will help to reduce
any misinterpretations or expectations between the analyst and the client. This “should
include the nature, purpose, and objective of the valuation engagement, the client’s
responsibilities, the valuation analyst’s responsibilities, the applicable assumptions and
limiting conditions, the type of report to be issued, and the standard of value to be used.”
(AICPA, 2007)
Special knowledge and skill are necessary to complete a business valuation. Over the years,
the need for this type of service has grown. Therefore, the SSVS was written “to improve the
consistency and quality of practice among AICPA members performing business valuations.”
(AICPA, 2007) Members are required to follow these standards. The SSVS is like other
standard setting bodies in that they all provide guidance to the accountant with a focus on
quality and uniformity in reporting business valuations. Each standard calls for accuracy and
integrity from those performing the valuations.
After reviewing the SSVS, a few of the major elements required stood out to me. The first
was "Objectivity and Conflict of Interest". This is important because if you are too close to a
subject of evaluation, such as your own company, you may have a biased influence in the
valuation if even subconsciously. (AICPA, 2007) I also felt this standard along with several
others aligned with GAAP standards as well legal and ethical standards for tax professionals
Another element that drew my attention was "Scope Restrictions and Limitations". It is
important to know if there are limitations in the information provided or available for the
analysis and valuation, and if so this is noted in the final valuation. (AICPA, 2007) If you
have limitations on information provided, you may not be able to make an accurate valuation
at all, and it is important to know this from the beginning and determine whether an accurate
valuation can even be made from the information available.
Then the element of "Valuation Approaches and Methods" stood out to me as well. This was
interesting in how there are several different approaches valuations may be made from,
income approach, asset approach, or market approach. Depending on the purpose of the
valuation, you may look at the information from different angles and provide deferent
information based on what the purpose is for the valuation. (AICPA, 2007)
Three of the major elements I felt were most important in the Statement on Standards for
Valuation are:
• Professional Competence – This element states that you need to have the overall
knowledge, skill, and competence to provide the professional services for a client, which I
believe is one of the most critical and (seemingly) common sense elements for this type of
service. As stated in VS Section 100 of the SSVS “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 analyse data, consider, and apply
the appropriate valuation approaches and methods, and use their professional judgement in
developing the estimate of value (AICPA).”
• d Objectivity and Conflict of Interest – this element I believe also speaks for itself in that it
is your professional responsibility to remain “impartial, intellectually honest, disinterested,
and free from conflicts of interest (AICPA)”.
• Establishing an Understanding with the Client – this element explains that you should
have an understanding with the client and suggest that this be in writing on what is expected
to be performed. This is important across the board for all business engagements but should
set the standard of what is expected so that both parties have an agreed understanding of
valuation and be modified or amended as other circumstances arise (AICPA).
In review of the provided link to the Business Valuation/Appraisal Standards Comparison
Chart, the SSVS elements follow in comparison to other standard-setting bodies which all
seem to lay out the core standards for valuation. The American Society of Appraisers (ASA)
and Institute of Business Appraisers (IBA) are all shown alongside AICPA’s with the only
differences being the layout and section breakdowns for each, showing that these are all
covering the same core standards (NACVA).
AICPA. (2007, June). Statement on Standards for Valuation Services (VS Section 100).
Resources | AICPA. https://www.aicpa.org/resources/download/statement-on-standards-for-
valuation-services-vs-section-100
NACVA Standards Board. Business Valuation/Appraisal Standards Comparison Chart.
NACVA. http://web.nacva.com/TL-Website/PDF/StandardsChart-B%20FINAL.pdf
AICPA. (2007, June). Statement on Standards for Valuation Services (VS Section 100).
https://www.aicpa.org/resources/download/statement-on-standards-for-valuation-services-vs-
section-100
AICPA (2007). Statement on Standards for Valuation Services (VS Section 100). Retrieved
from https://www.aicpa.org/resources/download/statement-on-standards-for-valuation-
services-vs-section-100
Robbins, W. & Taylor, G. (2008, June). SSVS 1: Applying New Standards for CPAs
Providing Valuation Services. Retrieved from
http://archives.cpajournal.com/2008/608/essentials/p54.htm
AICPA (2007). Statement on standards for valuation services. Retrieved from
https://www.aicpa.org/resources/download/statement-on-standards-for-valuation-services-vs-
section-100
