Business Valuations Are All the Same, Right?

By Heather Deskins, CPA/ABV/CFF, CFE, CVA

Do you have a client that needs their business valued and you are unsure what type of business valuation engagement your client needs? There are two types of business valuation engagements (valuation engagement and calculation engagement) and there are three different types of valuation reports (detailed, summary and calculation reports).

According to the American Institute of Certified Public Accountants (AICPA) Statement on Standards for Valuation Services No. 1 (SSVS 1) a valuation engagement is when:

(1) the engagement calls for the valuation analyst to estimate the value of a subject interest and (2) the valuation analyst estimates the value and is free to apply the valuation approaches and methods he or she deems appropriate in the circumstances. The valuation analyst expresses the results of the valuation as a conclusion of value; the conclusion of value may be either a single amount or a range.

And a calculation engagement is when:

(1) the valuation analyst and the client agree on the valuation approaches and methods the valuation analyst will use and the extent of procedures the valuation analyst will perform in the process of calculating the value of the subject interest (these procedures will be more limited than those of a valuation engagement) and (2) the valuation analyst calculates the value in compliance with the agreement. The valuation analyst expresses the results of these procedures as a calculated value. The calculation engagement is expressed as a range or single amount. A calculation engagement does not include all of the procedures required for a valuation engagement.

A valuation engagement results in a conclusion of value, while the calculation engagement results in a calculated value. A conclusion of value or a calculated value can be expressed in writing or communicated orally to the client. If expressed in writing, a valuation engagement is provided in a detailed report or a summary report, while a calculation engagement is provided in a calculation report.

The detailed report is the most costly of the three reporting options as it provides the most analysis and supporting information and is structured to provide sufficient information to permit the intended users to understand the conclusion of value.

The summary report requires the same level of procedures as a detailed report, but contains less information. A summary report is appropriate for clients that desire a conclusion of value but do not require as much documentation as the detailed report. This report is less costly than the detailed report.

The calculation report is the least expensive valuation report option as it is more limited in scope and requires less procedures than a detailed and summary report. The calculated value is based on following a predetermined formula and does not necessarily depend on the best valuation procedures for the circumstances.

The purpose for the valuation can help direct the type of report that is needed. If you and your clients are unsure what valuation report is best for their situation, please give P.D. Eye a call at 614.722.7914 to discuss their options.

Heather Deskins, CPA/ABV/CFF, CFE, CVA

Heather Deskins,
CPA/ABV/CFF, CFE, CVA

Managing Member
P.D. Eye Forensics, LLC