By Amber Hoover, CPA/ABV
Senior Analyst, Valuation and Litigation Services
[email protected]
One of the issues we commonly address as we begin the valuation process is: What kind of valuation is needed? Does the situation require a definitive value of the company or asset, or will a less detailed analysis suffice?
These two different choices line up nicely with the American Institute of Certified Public Accountants (AICPA) Statement on Standards for Valuation Services (SSVS) guidance on the types of services a Certified Public Accountant (CPA) with an Accredited Business in Valuation (ABV) can offer. A CPA/ABV can perform either a Valuation Engagement (Comprehensive) or a Calculation Engagement (Limited). The following is a rundown of the differences between the two to assist you in making the right decision for your valuation situation.
The result of a valuation engagement can be expressed as a single amount or a range of value, using one or more of several appropriate valuation approaches and methods. Using the selected approach(es) and method(s), the valuation analyst prepares the appropriate documentation to support their conclusion, and submits a report. The report can be an oral report, a summary or a detailed report.
A valuation engagement is more thorough than a calculation engagement and therefore requires more time which equates to a higher cost than a calculation engagement. Valuation engagements are best suited for litigation, such as shareholder or marital dissolutions and regulatory reporting like estate and or gift reporting to the Internal Revenue Service etc.
A calculation engagement is a limited-scope engagement in which the valuation analyst and client agree on the valuation approaches and methods that will be utilized. The result of a calculation engagement is expressed as a “calculated value”, which again can be a single amount or a range.
In many cases a calculation engagement will exclude certain procedures required to be performed in a valuation engagement. Excluding these procedures often leads to a calculation engagement having a lower cost than a valuation engagement. Because of the lower costs, a calculation engagement is often chosen as the valuation service. Keep in mind that while the results of a calculation engagement are typically a reliable value, because limited work is performed, there must be disclosure in the calculation report that the value could be different had more work been done. This disclosure requirement of the SSVS often limits the use of a calculation engagement in an adversarial situation.
Here at Sponsel CPA Group we offer a preliminary overview of your client’s financial data before recommending whether a calculation or valuation engagement is warranted. We offer this in order to prevent the users of our work product from paying for a service that may not be necessary. And we offer the overview free of charge.
We understand the desire to control professional fees. We want our clients to have confidence in the valuation service we provide and feel comfortable with Sponsel CPA Group as their valuation analysts.
If you have any further questions about the types of valuation reporting available, please contact Amber Hoover at (317) 613-7844 or [email protected].