RESOURCE ARTICLES BY CATEGORY Valuation Forensic Accounting Financial Reorganization Intellectual Property Economic Damages Lost Profit Damage Claims Newsletters		Valuation Standards Raise Bar When the American Institute of Certified Public Accountants (AICPA) implements its first formal standards for business valuation engagements on January 1, 2008, every CPA will be required to follow the same guidelines for conducting valuation analyses and documenting the findings. That's good news for clients. "A common standard of practice means that clients can expect higher quality valuation analyses, consistently," says Jeb Schmitt, manager in Gleason & Associates' business valuation practice. Schmitt, who earned his Accredited in Business Valuation (ABV) credential in 2005, discusses the relevance of the new Statement on Standards for Valuation Services No. 1 (SSVS 1), a document nearly six years in the making. Why is the AICPA implementing a valuation standard? Schmitt: Since 1997, when the AICPA began offering the ABV credential, more than 2,500 CPAs have become accredited business valuation experts. At the same time, the IRS, the SEC and courts across the country are increasingly scrutinizing valuation analyses. While several other professional organizations had previously published valuation standards, there was little commonality and no guidance from the AICPA. With SSVS 1, CPAs should now sing in the same key more often. As a result, clients and their advisors will be able to easily compare reports and conclusions between analysts, replicate the analyst's data sources and methods, duplicate the conclusions presented in detailed reports, and gain comfort that analyses properly following the SSVS 1 standard are more reliable and defensible. What parts of a valuation analysis become standard under SSVS 1? Schmitt: The new standard defines the generally accepted valuation approaches and methods and offers two options for valuation analyses, the "valuation" or "calculation" engagement. It also outlines the key components of valuation reports, recognizes and adopts an international glossary of valuation terms agreed upon by five accrediting bodies, and provides guidelines for documenting a valuation analysis in a written report. What's the difference between "valuation" and "calculation" engagements? Schmitt: In a valuation engagement, the analyst and client are free to apply the valuation approaches and methods they deem appropriate to arrive at a conclusion of value. They may also choose from three types of documentation: an "oral," "detailed," or "summary" report. The detailed report requires analysts to document and explain the underlying value determination; a summary report is generally an abridged version of the detailed report. In a calculation engagement, the analysis is limited to the valuation approaches and methods that the analyst and client agree to upfront. Either an oral report or a written "calculation" report is required. A calculation report is generally brief, including only a short summary of the engagement and the conclusion. It's important to note that when a valuation is performed in connection with litigation, arbitration, mediation or other controversial proceeding, valuation analysts are exempt from the reporting portion of SSVS 1. The development provisions of the statement still apply to the valuation analysis itself, however. How does SSVS 1 impact valuations performed by Gleason & Associates? Schmitt: The valuation approaches and methods identified in SSVS 1 are the same as those we have utilized in our valuation practice for years. For that reason, clients can expect only subtle changes - for example, an updated reporting format and the inclusion of some new language to conform to the statement's prescribed vocabulary. Additionally, at the beginning of each assignment we will work closely with clients to define the project as either a valuation or calculation engagement and determine which type of report allowable under SSVS 1 is most appropriate. Why Gleason | Practice Areas | Meet Our Team | Case Studies | Continuing Education | Resources | Site Map | Contact Us | Home © 2010 Gleason & Associates One Gateway Center, Suite 525, 420 Ft. Duquesne Blvd., Pittsburgh, PA 15222, Phone: 412.391.9010,