I Have My Valuation Report: Now     What Do I Do With It?!     Chris E. Best, CPA/ABV, ASA, MCBA, ABAR
Business Valuation Report Review Donovan v. Cunningham (716 F.2d 1455 (1983))   "An independent appraisal is not a magic...
Business Valuation Report Review Howard v. Shay:   “The fiduciary is required to make an honest,    objective effort to ...
Business Valuation Report Review Settlement in Couturier case:   “The fiduciaries must . . . :     • Investigate the qua...
Business Valuation Report Review Settlement in Couturier case:   “The fiduciaries must . . . :     • Verify that conclus...
Business Valuation Report Review   What is it?   Process   Options   Selecting the reviewer   Common errors
Business Valuation Report Review What is it?:    Specialized area of appraisal practice    Subject to:      • Standard ...
Business Valuation Report Review What is it?:    Opinion regarding the “credibility” of the report    Opinion regarding...
Business Valuation Report Review Process:   Read report and identify areas for concern for    additional investigation  ...
Business Valuation Report Review Options:   Express an opinion on credibility     • State the corrective action to be ta...
Business Valuation Report Review Options:   Express an opinion on credibility and value     • Make corrections to cure a...
Business Valuation Report Review Selecting the Reviewer - Criteria:    Designations:      • Accredited in Business Appra...
Business Valuation Report Review Selecting the Reviewer:   Familiarity with the requirements of ERISA with report    to ...
Business Valuation Report Review Common Errors in Reports:   Lack of analysis, assessment, and reasoning to support    c...
Business Valuation Report Review Common Errors:   Inadequate disclosure/analysis of industry conditions    and outlook  ...
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Business valuation report review

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  • ERISA does not require that all plan fiduciaries be experts in all phases of plan administration – a fiduciary can rely on the work of experts.With the increased scrutiny of business valuation reports by the DOL, many ERISA advisors around the country are suggested that a fiduciary obtain an independent review of the valuation report.
  • Business valuation report review

    1. 1. I Have My Valuation Report: Now What Do I Do With It?! Chris E. Best, CPA/ABV, ASA, MCBA, ABAR
    2. 2. Business Valuation Report Review Donovan v. Cunningham (716 F.2d 1455 (1983))  "An independent appraisal is not a magic wand that fiduciaries may simply wave over a transaction to ensure that their responsibilities are fulfilled. It is a tool and, like all tools, is useful if used properly. To use an independent appraisal properly, ERISA fiduciaries need not become experts in the valuation of closely held stock – they are entitled to rely on the expertise of others."
    3. 3. Business Valuation Report Review Howard v. Shay:  “The fiduciary is required to make an honest, objective effort to read the valuation, understand it, and question the methods and assumptions that do not make sense. If after a careful review of the valuation and a discussion with the expert, there are still uncertainties, the fiduciary should have a second firm review the valuation.”
    4. 4. Business Valuation Report Review Settlement in Couturier case:  “The fiduciaries must . . . : • Investigate the qualifications of the independent appraiser before being retained to do the independent valuation; • Determine that the appraiser’s opinion letter is justified by reading and understanding the opinion and any supporting documents in the independent appraiser opinion letter, including identifying, questioning, and testing assumptions that underlie the assumption in the opinion;
    5. 5. Business Valuation Report Review Settlement in Couturier case:  “The fiduciaries must . . . : • Verify that conclusions in the opinion are consistent wit the data and analysis of the valuation report, and all other reports, are internally consistent; and, if necessary, • If necessary, retain additional expert support to aid understanding and addressing any problems with the valuation report and other deemed necessary reports and/or advice and supporting documents.”
    6. 6. Business Valuation Report Review What is it? Process Options Selecting the reviewer Common errors
    7. 7. Business Valuation Report Review What is it?:  Specialized area of appraisal practice  Subject to: • Standard 3: Appraisal Review, Development and Reporting of the Uniform Standards of Professional Appraisal Practice (USPAP)
    8. 8. Business Valuation Report Review What is it?:  Opinion regarding the “credibility” of the report  Opinion regarding: • Completeness • Accuracy • Relevance • Appropriateness • Reasonableness  May include a separate opinion of value
    9. 9. Business Valuation Report Review Process:  Read report and identify areas for concern for additional investigation  Replicate the process used by the appraiser • Trace numbers to source documents • Check calculations of key variables  Check internal consistency of the report  Check compliance with applicable standards and generally accepted appraisal practices
    10. 10. Business Valuation Report Review Options:  Express an opinion on credibility • State the corrective action to be taken • Act on behalf of client to interact with appraiser and correct deficiency • Make corrections to cure an error without expressing an opinion of value
    11. 11. Business Valuation Report Review Options:  Express an opinion on credibility and value • Make corrections to cure a deficiency and express an opinion of value within the same scope of work • Make corrections to cure a deficiency and express an opinion of value using a different scope of work • Develop own opinion of value using the same scope of work • Develop own opinion of value using a different scope of work
    12. 12. Business Valuation Report Review Selecting the Reviewer - Criteria:  Designations: • Accredited in Business Appraisal Review (ABAR) • Accredited Senior Appraiser in Appraisal Review & Management (ASA-ARM)  Familiarity with the Uniform Standards of Professional Appraisal Practice and the professional standards of all of the accrediting organizations
    13. 13. Business Valuation Report Review Selecting the Reviewer:  Familiarity with the requirements of ERISA with report to valuation reports prepared for ESOP purposes  Instructor for business valuation courses, ESOP appraisal courses, or report review courses  Experience in preparing valuations for ESOP purposes
    14. 14. Business Valuation Report Review Common Errors in Reports:  Lack of analysis, assessment, and reasoning to support conclusions  Insufficient support for discount for lack of marketability  Lack of disclosure of key information regarding the ESOP that affects the valuation
    15. 15. Business Valuation Report Review Common Errors:  Inadequate disclosure/analysis of industry conditions and outlook  Mismatching cost of capital with earnings being capitalized or discounted  Improper identification of the interest being valued

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