Brent McDade presented this presentation at the TSCPA Forensic & Valuation Services Conference.

1. A Global Reach with a Local Perspective
www.decosimo.com
Calculation Engagements
BRENT MCDADE – BRENTMCDADE@DECOSIMO.COM

2. Decosimo Advisory Services
 Business Valuation
 Litigation Support
 Transaction Advisory

3. 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

4. A Global Reach with a Local Perspective
www.decosimo.com
Standards that Apply to Valuation Work

5. Standards
 AICPA
 IBA
 NACVA
 ASA
 The Appraisal Foundation

6. USPAP
 Applies to multiple appraisal disciplines
 Longest standing set of standards we have
 Applies to all appraisal practice

7. “I don‟t have to follow USPAP”
 Jurisdictional exception rule
 Scope of work rule
 Competency rule
 Ethics rule
 Standard 9
 Standard 10

8. 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

9. 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

10. 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

11. 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

12. A Global Reach with a Local Perspective
www.decosimo.com
Common Calculation Report Myths

13. 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.”

14. 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.”

15. A Global Reach with a Local Perspective
www.decosimo.com
What is a Calculation Engagement?

16. 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

17. 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

18. 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”

19. 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

20. A Global Reach with a Local Perspective
www.decosimo.com
What is a Valuation Engagement?

21. Valuation Engagement per AICPA SSVS 1
1. Engagement calls for analyst to estimate the value
of a subject interest
2. Analyst is free to apply valuation approaches and
methods he or she deems appropriate in the
circumstances
3. Sounds a whole lot like USPAP “appraisal”

22. 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

23. 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

24. A Global Reach with a Local Perspective
www.decosimo.com
Back to the Myths

25. 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

26. 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

27. 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

28. 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

29. A Global Reach with a Local Perspective
www.decosimo.com
Group Discussion

30. CONNECT WITH ME
Brent McDade, ASA, CBA
423.266.5212
brentmcdade@decosimo.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.