The Expert Valuation Report

Several recognized and highly respected organizations have instituted programs for certifying the competency of business appraisers, including, but not limited to, the American Institute of Certified Public Accountants (AICPA), the Institute of Business Appraisers (IBA), the National Association of Certified Valuation Analysts (NACVA) and the American Society of Appraisers (ASA). The AICPA's Accredited in Business Valuation (ABV) and NACVA's Certified Valuation Analyst (CVA) require a currently licensed certified public accountant (CPA) to complete stringent examination and experience requirements for their respective designations. Likewise, the IBA's Certified Business Appraiser (CBA) and the ASA's Accredited Senior Appraiser (ASA) require candidates to complete a comprehensive process of examination, experience and peer review. Other organizations have established their own similar standards.

Each of these organizations has established guidelines that serve as standards for their respective members. Such guidelines include:

• The AICPA's Statement on Standards for Valuation Services (SSVS-1) that were adopted by their Consulting Services Executive Committee provide standards to improve the consistency and quality of practice among AICPA members performing business valuations. Although SSVS-1's effective date was Jan. 1, 2008, earlier application is encouraged.
• NACVA and IBA established their own standards in prior years. However, membership of both organizations voted to ratify new principles-based standards that were developed jointly by a team representing both organizations. The standards are in parity with the AICPA's SSVS-1 and provide profession-wide unification. NACVA's professional standards are effective Jan. 1, 2008. IBA's professional standards are effective for engagements accepted after June 1, 2011; however, earlier adoption is encouraged by the IBA.
• The ASA's Business Valuation Standards (BVS) include standards approved through November 2009. ASA's Statements on Business Valuation Standards (SBVS) clarifies, interprets, explains, and elaborates on the BVS. Both the BVS and the SBVS are used in conjunction with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation, as well as the ASA's Principles of Appraisal Practice and Code of Ethics. In addition, the ASA's Advisory Opinions (AO) illustrate the Standards and Statements, while the Procedural Guidelines (PG) are non-binding.
• The Appraisal Foundation's USPAP generally covers the appraisals of real property, personal property, and intangible property, including business interests. The purpose of USPAP is to promote and maintain a high level of public interest in appraisal practice by establishing requirements for appraisers. USPAP “Definitions” establish applicable valuation terminology. USPAP's “Rules” establish ethics, competency, scope of work, and jurisdictional exceptions. USPAP's “Standards” establish requirements for appraisal, appraisal review, and appraisal consulting services. USPAP's “Statements” clarify, interpret, explain or elaborate.

Next month, we will discuss the different types of valuation engagements, and what to expect and look for in the reports generated therefrom.

Johanne M. Floser is a Certified Business Appraiser (CBA) and Senior Manager with BST Valuation & Litigation Advisors, LLC, with offices in Albany, NY, and New York City. She has extensive experience in the valuations of privately held business enterprises, professional practices, professional licenses and advanced academic degrees for use in matrimonial matters, litigation, buy/sell transactions, estate tax proceedings and other circumstances.

Determining the value of a business owned by one or both parties to a divorce is a complicated matter. Who is qualified to appraise such a business interest in the context of equitable distribution? How will the appraisal be conducted? And what can you expect to learn from the expert's report?

Professional Standards

In recent years, great emphasis has been placed on defining requirements for qualified business appraisers. In particular, the Internal Revenue Service (IRS) issued Notice 2006-96 that provided transitional guidance relating to, among other things, the new definition of “qualified appraiser” in Internal Revenue Code (IRC) '170(f)(11). Specifically, IRC 170(f)(11)(E)(ii) defines a “qualified appraiser” as “an individual who (1) has earned an appraisal designation from a recognized professional appraisal organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary, (2) regularly performs appraisals for which the individual receives compensation, and (3) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance.”

Several recognized and highly respected organizations have instituted programs for certifying the competency of business appraisers, including, but not limited to, the American Institute of Certified Public Accountants (AICPA), the Institute of Business Appraisers (IBA), the National Association of Certified Valuation Analysts (NACVA) and the American Society of Appraisers (ASA). The AICPA's Accredited in Business Valuation (ABV) and NACVA's Certified Valuation Analyst (CVA) require a currently licensed certified public accountant (CPA) to complete stringent examination and experience requirements for their respective designations. Likewise, the IBA's Certified Business Appraiser (CBA) and the ASA's Accredited Senior Appraiser (ASA) require candidates to complete a comprehensive process of examination, experience and peer review. Other organizations have established their own similar standards.

Each of these organizations has established guidelines that serve as standards for their respective members. Such guidelines include:

• The AICPA's Statement on Standards for Valuation Services (SSVS-1) that were adopted by their Consulting Services Executive Committee provide standards to improve the consistency and quality of practice among AICPA members performing business valuations. Although SSVS-1's effective date was Jan. 1, 2008, earlier application is encouraged.
• NACVA and IBA established their own standards in prior years. However, membership of both organizations voted to ratify new principles-based standards that were developed jointly by a team representing both organizations. The standards are in parity with the AICPA's SSVS-1 and provide profession-wide unification. NACVA's professional standards are effective Jan. 1, 2008. IBA's professional standards are effective for engagements accepted after June 1, 2011; however, earlier adoption is encouraged by the IBA.
• The ASA's Business Valuation Standards (BVS) include standards approved through November 2009. ASA's Statements on Business Valuation Standards (SBVS) clarifies, interprets, explains, and elaborates on the BVS. Both the BVS and the SBVS are used in conjunction with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation, as well as the ASA's Principles of Appraisal Practice and Code of Ethics. In addition, the ASA's Advisory Opinions (AO) illustrate the Standards and Statements, while the Procedural Guidelines (PG) are non-binding.
• The Appraisal Foundation's USPAP generally covers the appraisals of real property, personal property, and intangible property, including business interests. The purpose of USPAP is to promote and maintain a high level of public interest in appraisal practice by establishing requirements for appraisers. USPAP “Definitions” establish applicable valuation terminology. USPAP's “Rules” establish ethics, competency, scope of work, and jurisdictional exceptions. USPAP's “Standards” establish requirements for appraisal, appraisal review, and appraisal consulting services. USPAP's “Statements” clarify, interpret, explain or elaborate.

Next month, we will discuss the different types of valuation engagements, and what to expect and look for in the reports generated therefrom.

Johanne M. Floser is a Certified Business Appraiser (CBA) and Senior Manager with BST Valuation & Litigation Advisors, LLC, with offices in Albany, NY, and New York City. She has extensive experience in the valuations of privately held business enterprises, professional practices, professional licenses and advanced academic degrees for use in matrimonial matters, litigation, buy/sell transactions, estate tax proceedings and other circumstances.