In last week’s issue of BVWire, we included some comments from readers about two articles (see “Calculation Report Controversy” link) we posted, one of which urges valuation experts to stay away from calculation engagements and a rebuttal article that disagrees with some of the points made. Jim Alerding (Alerding Consulting LLC), who recently conducted a webinar with BVR on the matter and is one of the co-authors of recent AICPA guidance, has responded to some of the comments we received.
Reader comment: “(A) calculation of value can never be used in a USPAP engagement because all USPAP engagements involve an appraisal, which is defined in USPAP as an ‘opinion of value.’ USPAP scope of work is irrelevant.”
Alerding responds: “I would suggest your commenter take this issue up with Carla Glass (Marcum LLP) and Jay Fishman (Financial Research Associates), both of whom have made clear that the scope of work rule does indeed allow a scope under USPAP that would result in a calculation (the rebuttal article contains citations).”
Reader comment: “Therefore, a calculation of value has no place in situations where an opinion is needed, such as situations where a USPAP engagement is required and trial work in litigation.”
Alerding responds: “I am not sure what the commenter is referring to, but the only time that a USPAP engagement is ‘required’ by law is in real estate transactions. In business valuation engagements (which is what the SSVS calculation engagement applies to), there is no requirement for a USPAP engagement. The ASA requires that USPAP be followed in all of their business valuation engagements, but that is not a legal requirement. In fact, the ASA has a calculation engagement as part of its business valuation standards. Finally, the assertion that in litigation a calculation engagement is not appropriate is up to the trier of fact and not up to USPAP, the ASA, or the AICPA. There are cases where calculation engagements have been accepted by the courts.”
Reader comment: “It is unfortunate that the authors of the AICPA [guidance on] calculation reports use the term ‘value.’ The Appraisal Foundation and ASA should have objected to the use of that term, which is proprietary to the appraisal industry.”
Alerding responds: “The word ‘value’ is used throughout the appraisal and business valuation ‘industry.’ To suggest that the word or term ‘value’ is proprietary simply does not make sense. It is obviously in the public domain. Consider the term fair market value. Consider that Revenue Ruling 59-60 discusses the determination of fair market value. Under the commenter’s assertion, perhaps the IRS should have the proprietary use of the term. Further, note ‘[t]he objective of a calculation is to provide an approximate indication of value’ from the ASA BVS-I ASA BV standards. The ASA was, by far, the first group to allow a calculation. The quoted language calls the result of a calculation a ‘value.’”
“The bottom line is that the calculation engagement is a fact of the SSVS and also a fact of the ASA,” says Alerding. “As to the SSVS, I doubt it will be eliminated, although that is my personal opinion.”