We DO Need Business Valuation Standards!

Kevin R. Yeanoplos, CPA, ABV, ASA

The AICPA is expected to re-release for a 60-day period of public comment the already “much exposed,” proposed Statement on Standards for Valuation Services (the Standards). This new draft of the Standards will still likely not be perfect for everyone, considering the complex and constantly evolving field of valuation. However, the Standards will certainly represent much needed guidance for CPAs involved in valuation services.

Of course, a key aspect of the proposed standards is to define exactly who is involved in valuation services. This issue seems to be the main sticking point for many CPAs that don’t see the need for the Standards in the first place. However, from the perspective of this humble, experienced valuation practitioner, many of those same CPAs have seemingly been providing valuation services without knowing it.

The Standards will apply to all AICPA members that provide valuation services as outlined, regardless of whether or not they hold the AICPA’s Accreditation in Business Valuation designation.

The Business Valuation Standards Writing Task Force includes Chairman Ed Dupke (a recent Arizona resident), Jim Alerding and Jim Hitchner — all highly respected luminaries in the business valuation profession. The Standards have proven to be well organized, providing an effective framework for CPAs to perform valuation services for the varied purposes, levels of execution, and reporting in which we are asked to serve.

The Standards cover the most important areas of valuation practice including business valuations, intangible asset valuations, record retention, restrictions on contingent fee engagements, establishing the terms of the engagement, and the use of outside experts. A tremendous amount of effort went into ensuring that the Standards are sufficiently consistent with standards established by other valuation organizations, including the American Society of Appraisers, the Institute of Business Appraisers, and the National Association of Certified Valuation Analysts, as well as the Uniform Standards of Professional Appraisal Practice, to avoid conflicting professional standards for those CPAs who are also members of these other professional organizations.

An important matter addressed in the Standards included guidance to ensure compliance with the Statements on Standards for Accounting and Review Services (SSARS). Basically, the valuation analyst is required to issue a separate compilation report only in situations wherein the analyst uses underlying accounting records (i.e. general ledger or trial balance) and puts this information into his report in the form of financial statements. Restating previously prepared financial statements, whether they are audited, reviewed, compiled, prepared by the client or taken from the tax returns, do not require the issuance of a compilation report by the valuation analyst to remain in conformity with SSARS.

The most recent draft of the Standards defined two levels of valuation services: 1) a Valuation Analysis, and 2) a Calculation Analysis. A Valuation Analysis is defined as the act or process of preparing a conclusion of value in conformity with the Standards. A Calculation Analysis is defined as the act or process of preparing an indication of value based on assumptions, approaches, and procedures agreed upon with the client.

In addition, the most recent draft of the Standards defined three classifications of valuation reports: 1) a Detailed Report, 2) a Summary Report, and 3) Calculation Reports. Detailed and Summary reports can be issued when the valuation analyst has performed a Valuation Analysis. Calculation Reports can be issued when the analyst has performed a Calculation Analysis.

Without overstepping its purpose by attempting to serve as a training manual, the Standards provide excellent guidance regarding the work that should be performed by the valuation analyst as well as the information the analyst should include in his or her report. Hopefully, the final standards will be issued in late 2006, after receiving comments from the public. The standards will become effective six months following their issue date.

What will be the ultimate result of the promulgation of the Standards? The quality of work for ALL complying professionals will be enhanced, resulting in greater credibility, more respect, greater practice development opportunities — you get the idea.

Will some practitioners be negatively impacted? Only if you consider that certain practitioners will have to make changes in order to “get up to speed,”or no longer provide valuation services because they won’t or can’t make the changes. I suppose this begins to look like a “fish or cut bait” scenario.

From my perspective, I would love to have many more occasional valuation practitioners experience the challenges and fantastic rewards of a full-time valuation practice. Bring on the Standards!

Kevin Yeanoplos, CPA, ABV, ASA, of Brueggeman and Johnson Yeanoplos, PC, is chair of the ASCPA Business Valuation & Litigation Services Section.

AZ CPA – July/August 2006

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