In a letter that was posted on August 4th to the SEC website here and dated July 22, 2008, the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers (the authors) banded together to send a letter highlighting their serious concerns to the SEC regarding its Advisory Committee’s Draft Report on Financial Reporting. Although their letter is primarily focused on real estate appraisals, they also “point out that the protocols of professional appraisal practice….are also observed by valuation professionals in other disciplines,” including business valuation.
The authors wrote, “the Report does not recognize that valuation specialists and the valuation community have an important role to play in fair value reporting” and that “the recommendations should utilize the existing body of knowledge in the valuation profession.” They also address some of the Report’s criticism (see pages 22-23 in the Report) regarding what the Report claims are (1) a lack of a single set of generally accepted valuation standards; (2) significant variances in the quality, skill and reports of valuation specialists; (3) no mechanism to ensure ongoing quality, training and oversight of valuation specialists; and (4) that auditors should reduce dependence on valuation specialists and create new valuation curricula in accounting programs.
Is this a dismissal of the valuation profession by the SEC’s Draft Report? There are several professional organizations that have promulgated business valuation standards, including the AICPA’s SSVS1, USPAP, ASA, IBA, NACVA, CICBV, IVSC, in addition to the International Glossary of Business Valuation Terms and the Internal Revenue Services’ Examining Process. On a more positive note, and for the betterment of users of valuation reports, it appears there has been a recent effort to find common ground in these standards.
The authors closed by informing the Advisory Committee that valuation specialists are “highly trained professionals who meet rigorous valuation-specific requirements involving experience, education, training and testing; who adhere to the Uniform Standards of Professional Appraisal Practice; and, who observe strict ethics and independence mandates” and that they “encourage greater understanding of professional appraisal designations and the body of knowledge of our profession.” If you have any comments on this, please send them to firstname.lastname@example.org.
Donald P. Wisehart, ASA, CPA/ABV, CVA, MST, (Wisehart Inc.) and David Anderson (Amper, Politziner & Mattia, LLP) have provided comments about this as follows:
Regarding item (1) above, although there are multiple valuation standards, I believe that i) the development sections of all the valuation standards identified in the Report to arrive at “an opinion of value” are virtually the same, and ii) the reporting standards relating to “an opinion of value” (that is a detail, full or comprehensive report) vary somewhat in disclosure, but are very similar. Items (2) and (3) must and can be addressed through the self-policing and peer review programs of promulgating organizations. The same problems existed with the AICPA before it instituted its self-policing and peer review policies and programs. I hope the SEC will stand up and assist us with these issues to insure the integrity of what we do and to weed out the “Valuation R’ US” practitioners that cheapen, literally and figuratively, our profession. Item (4) is tantamount to throwing out the baby with the bath water. Don and David hope to demonstrate a coalescing of valuation standards in an upcoming article in the Business Valuation Update.