Does the Push for Ethics and Accuracy Affect Valuations
Leslie H. Miles Jr.
2005 - Despite the emphasis on ethics and accuracy in the
current business environment, opportunities for creativity
and artistry remain when it comes to valuations and appraisals.
Despite increasing demands for standardization, valuation
remains more an art than a science. For example, artistry
requires using new technology, such as digital dictation
that allows valuators to get through a plant in less time
than previously required. Other technology allows for gathering
more data, such as high-quality digital pictures. In addition
to demonstrating a certain level of artistry, such technological
developments also increase accuracy. Wireless technology
enables a valuator or appraiser to begin research even before
returning to the office.
has also made appraisers and valuators less reliant on databases.
For example, before the advent of computer software like
Microsoft Excel, appraisers and valuators had to write multicategory
programs. Likewise, the quality of market analysis research
continues to improve because enormous amounts of data are
now available online.
Uniform Standards of Professional Appraisal Practice (USPAP)
are the generally accepted standards for professional appraisal
practice in North America. While USPAP attempts to provide
a standardized framework for appraisal, how an appraiser
interprets a case in light of the standards remains variable.
Following USPAP does not guarantee that different appraisers
will no longer arrive at very different values, because
it allows for a wide range of definitions and interpretations.
Moreover, a litigious environment often makes for an unreasonable
need to address every incidental. An appraiser may think
she has met USPAP, qualifying each and every point, but
a plaintiff’s lawyer may pick apart her work by interpreting
terms like “market” and “liquidation”
differently. Or, a company using its own appraiser could
come up with a much higher number than possible through
only an auction sale.
many people, the word “appraisal” is very rigid
and often without qualification, whereas a written appraisal
report itself may be qualified. For example, an accountant
asks an appraiser for a desktop opinion of what the equipment
is worth in a given company, based on a number of assumptions
provided by the accountant. This creates a dilemma for the
appraiser because not cooperating can diminish opportunities
for future business. If the appraiser does give an ad hoc
opinion, however, he puts himself in the same liability
position as if he had done a formal study, including inspections.
appraiser’s philosophy or approach to an assignment
can be particularly important when the assignment involves
valuing underlying assets. Without prior clarification of
definitions and interpretations, the outcomes of an appraisal
may not match expectations.
H. Miles Jr., ASA, CEA, is CEO of MB Valuation Services,