Valuation for Financial Reporting : Fair Value Measurements and ...

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Reports and ReportingStandardsChapter 4BUSINESS VALUATION REPORTING STANDARDS 1OVERVIEWAt the time of this writing, report writing in the valuation community is guided bystandards in the United States promulgated by the American Society of Appraisers(ASA), the Institute of Business Appraisers (IBA), The Appraisal Foundation (TAF),and the National Association of Certified Valuation Analysts (NACVA). Originallyauthorized by Congress, TAF standards are often referred to as USPAP, the acronymof its standards known as the Uniform Standards of Professional Appraisal Practice.The ASA, by the way, requires its appraisers to adhere to USPAP. The other U.S.valuation associations do not have this requirement.As of this writing, the American Institute of Certified Public Accountants(AICPA) released an exposure draft of the ‘‘Statement on Standards for ValuationServices—Valuation of a Business, Business Ownership Interest, or IntangibleAssets.’’ These proposed standards, which are far more detailed than the othervaluation standards, outline 11 areas that should be included in a valuation report.On July 27, 2006, the Internal Revenue Service (IRS) released its ‘‘IRM 4.48.4,Engineering Program, Business Valuation Guidelines’’ and ‘‘IRM 4.48.5, IntangibleProperty Valuation Guidelines.’’ Where the proposed AICPA reporting standards areclearly specified, the IRS report writing standards ({4.48.4.4 and 4.48.5.4) are quitegeneral, with the underlying requirement being to clearly communicate the results,identify the information relied upon, communicate the methodology and reasoning,and identify supporting documentation. Accordingly, these IRS standards give theappraiser a great deal of latitude as to what to include or not include in a reportdepending on the needs in each case. However, like several other of the reportingstandards, IRS reporting standards require a signed statement by the appraiserasserting truth, correctness, lack of bias, no present or prospective interests, assumptionsand limiting conditions, and the absence of a fee contingency.The reporting standards of NACVA, IBA, ASA, and TAF, seem generally to bebetween the degree of detail expressed by the AICPA and the IRS. The differencesmay be attributed to the style of each organization.135
136 Valuation for Financial ReportingSo what is common to these sets of valuation standards? First, these standards areconsidered by the organizations to be minimum standards or requirements. Second,the standards not only address what must be included in the valuation report, but alsowhat areas the valuator should consider in developing an opinion. These considerationsprobably originated, in part, from the IRS’s Revenue Ruling 59–60. 2 And third,all but the IRS standards address professional ethics. The common thread in thereporting standards of each organization is that certain elements must be communicatedin a manner that is clear, accurate, and not misleading. These elements includethe following:Engagement aspectsAnalysis of information and development of valueConclusion and signatureFinancial information usedLimiting conditions and assumptionsAppraiser representationsAt first glance, the process of comparing the various business valuation reportingstandards seems fairly straightforward. All that is needed is to check that all thestandards require a signature, or a certificate, or report date, and so on. At secondglance, such is not the case. Because each standard was written by differentorganizations, each with a unique style, the standards are, in fact, different inmany respects. One could say, ‘‘They’re pretty much the same,’’ and this may begenerally true, but the multiple writing styles do create technical differences. Therefore,it is the responsibility of every valuation specialist to be familiar with thosereporting standards promulgated by their respective organization and not to rely onexclusively Exhibit 4.2, which incorporates our interpretation.TYPES OF REPORTSIn simple terms, AICPA, ASA, USPAP, and IBA valuation standards permit thevaluation specialist to prepare reports that are considered by the authors to be less indetail or ‘‘verbiage’’ than comprehensive or full reports. In Exhibit 4.1, the names ofthe full reports as well as the other reports are summarized.NACVANACVA provides only one form of report, ‘‘A Written Report,’’ when expressing aconclusion of value as an opinion of value and therefore a single number, or anestimate of value, which can be expressed as a single number or a range of values.Both the opinion and estimate must meet its ‘‘minimum reporting criteria.’’ Othervaluation services, such as litigation support or calculations, are not subject to thereporting standards as well as the development standards.
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To our familiesnear and faryoung an
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PrefaceThe second edition of this b
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AcknowledgmentsTo Deanna Muraki, th
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Exhibit 3.4 Target Company Business
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Exhibit 3.7 Target Company Valuatio
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210 IndexBusiness Enterprise Analys
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212 IndexGoodwill (continued )111,
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214 IndexLong-termcapital, 71debt,
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216 IndexSecurities and Exchange Co
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