A Global Reach with a Local Perspective www.decosimo.comCalculation EngagementsBRENT MCDADE – BRENTMCDADE@DECOSIMO.COM
Decosimo Advisory Services Business Valuation Litigation Support Transaction Advisory
What We Will Cover Today The standards that apply to valuation work The engagement types these standards define Myths about calculation engagements Truths about calculation engagements Differences between calculations and other types of reports Group discussion / best practices
A Global Reach with a Local Perspective www.decosimo.comStandards that Apply to Valuation Work
Standards AICPA IBA NACVA ASA The Appraisal Foundation
USPAP Applies to multiple appraisal disciplines Longest standing set of standards we have Applies to all appraisal practice
“I don‟t have to follow USPAP” Jurisdictional exception rule Scope of work rule Competency rule Ethics rule Standard 9 Standard 10
ASA Standards Apply to members of the ASA Define 3 acceptable scopes of work Appraisal Limited appraisal Calculations Development standard very general Reporting standard defines comprehensive written business valuation report Incorporates USPAP
AICPA, IBA, NACVA IBA and NACVA standards very similar to AICPA Intent to move to a single set of standards If you comply with AICPA, you substantively comply with IBA and NACVA
When does SSVS 1 apply? AICPA members performing valuation services EXCEPT: Value provided by the client or a third party AND Member does not apply valuation approaches and methods AND Member does not report on the value of the subject interest Value part of an audit, review, or compilation Members not in public accounting for their employer Damages engagements (unless value is the measure) Mechanical computations Jurisdictional exception
SSVS No 1 Engagement Types Valuation engagement Conclusion of value More procedures Engagement calls for analyst to estimate value Analyst free to apply appropriate approaches and methods Calculation engagement Calculated value Client and analyst agree on approaches and methods Analyst performs calculations consistent with agreement Consistent with ASA definition
A Global Reach with a Local Perspective www.decosimo.comCommon Calculation Report Myths
Common Calculation Report Myths “A calculation engagement is a step towards full appraisal.” “A calculation gets to the same conclusion as a full appraisal – just with less verbiage.”
Common Calculation Report Myths “A good engagement strategy in litigation support is to begin with a calculation engagement and then „upgrade‟ to a full report later.” “The incremental expense of a full appraisal is in the writing of the report.”
A Global Reach with a Local Perspective www.decosimo.comWhat is a Calculation Engagement?
Calculation Engagement per SSVS 1 Must at least consider: Identity of client Identity of subject interest Interest’s ability to control and marketability Purpose and intended use of calculation Intended users and limitations on use Valuation date Standard and premise of value Sources of information Agreed-upon approaches and methods Subsequent events, if applicable
Calculation Report per SSVS 1 Must state it is a calculation report Must include a representation by appraiser (adapted) Identify any hypothetical or limiting conditions Any application of the jurisdictional exception How work of an outside specialist used Disclosure regarding subsequent events
Calculation Report Required Statements Certain calculation procedures performed, identify subject interest and calculation date Description of calculation procedures/scope of work Purpose of calculation & non-use for other purposes Identify compliance with SSVS of AICPA Identify level of value, valuation date Description of calculation: Does not include all procedures of valuation Were valuation performed, results may be different No obligation to update, signature of appraiser/firm Resulting number is a “calculated value”
Calculation Engagement per ASA Based on the performance of limited procedures agreed upon by the appraiser and client May be based on consideration of only limited relevant information Appraiser collects limited information and performs limited analysis May be based upon conceptual approaches agreed upon with the client
A Global Reach with a Local Perspective www.decosimo.comWhat is a Valuation Engagement?
Valuation Engagement per AICPA SSVS 11. Engagement calls for analyst to estimate the value of a subject interest2. Analyst is free to apply valuation approaches and methods he or she deems appropriate in the circumstances3. Sounds a whole lot like USPAP “appraisal”
Valuation Engagement Documentation Detailed Report Pretty close to BVS-VIII Compliant with Standard 10 Summary Report Not compliant with BVS-VIII Probably compliant with Standard 10
Calculation Report vs Summary Report Paras 71-77 of SSVS No. 1 Additional requirements for summary report: Identify client (perhaps implicit in calculation report due to “any other party…” requirement) Intended users (perhaps implicit in calculation report due to “any other party…” requirement) Specify valuation date Specify premise of value Specify standard of value List sources of information
A Global Reach with a Local Perspective www.decosimo.comBack to the Myths
Revisiting Calculation Myths “A calculation engagement is a step towards full appraisal.” Calculation engagements follow agreed-upon procedures, approaches, and methods Those agreed-upon with the client may not be those the appraiser would have used in a full appraisal
Revisiting Calculation Myths “A calculation gets to the same conclusion as a full appraisal – just with less verbiage.” May not use same valuation procedures Reporting requirements not all that different from a summary report on a valuation engagement Reporting of industry and economic conditions not all that much more work than researching
Revisiting Calculation Myths “A good engagement strategy in litigation support is to begin with a calculation engagement and then „upgrade‟ to a full report later.” Initial agreement on procedures can create perception of lack of independence Seems oddly coincidental that an ultimate conclusion would be exactly the same
Revisiting Calculation Myths “The incremental expense of a full appraisal is in the writing of the report.” Compared to a summary report, a calculation report is not all that much less effort
A Global Reach with a Local Perspective www.decosimo.comGroup Discussion
CONNECT WITH ME Brent McDade, ASA, CBA 423.266.5212 email@example.com On LinkedIn: www.linkedin.com/in/brentmcdade The contents and opinions contained in this article are for informational purposes only. The information is not intended to be a substitute for professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you may have regarding your financial goals or specific situations.
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