During a recent webinar on the use of calculation reports in valuation, the speaker was asked: Do you see an overall increase in the use of calculation reports? “Yes, and particularly for litigation purposes,” says Jim Alerding (Alerding Consulting LLC), one of the co-authors of VS100 (formerly SSVS No. 1), the AICPA’s BV standard. This is one reason a new AICPA task force (of which Alerding is a member) will explore the issue and provide guidance to practitioners who are increasingly getting their arm’s twisted for a less expensive “rough estimate.”
When the standards were written, it wasn’t contemplated that calculation reports would be used for litigation. It’s fine to use them to help settle a case, but using them in court is another story. If a case is heading into the courtroom, the analyst will often do a more detailed analysis. Alerding points out that, since there is no prohibition or endorsement in the AICPA standards on the use of an opinion of a calculated value by an expert witness, it’s up to the individual to decide whether or not it’s appropriate.
What to do: Alerding, who has testified over 400 times, says he would not go to trial with a number that, by definition, does not include all of the procedures necessary for a valuation engagement. Also, by definition, a calculation engagement includes a statement that, had a valuation engagement been performed, the results may have been different. This does not meet the sufficient, reliable, believable, and “reasonable certainty” tests, he says. He advises that you state in your engagement letter that you are willing to do a calculation for preliminary negotiations, but, if the case goes to trial, you will only testify if you perform a full valuation engagement.
Alerding conducted the webinar Calculation or Full Valuation? What You Need to Know Now, which gave an update on the current thinking related to calculations and their place in your practice.
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