AICPA Releases Proposed Valuation Rules
Seeks Comments by June 15

By Simon Eskow

The American Institute of CPAs has released a proposed set of standards for professionals conducting business valuations.

The AICPA issued the 63-page exposure draft on business valuation guidelines at the end of March, with a comment period ending on June 15. The draft includes guidelines on conflicts of interests, independence, methods and approaches to valuation for tax and litigation purposes, and other issues.

Early response to the draft was relatively positive.

“The standards are comprehensive, clearly written and provide a veritable how-to guide ranging from the explanation of valuation approaches to data collection to report writing,” said Martin Lieberman, vice chair of the New York State Society of CPAs’ Business Valuation Committee. “They are useful to users of valuation reports as well as practitioners.”

The AICPA developed and proposed the standards in order to improve the consistency and quality of a practice area that has grown significantly since the 1980s, according to a statement released by the organization. Once the standards are finalized, the AICPA members will be required to comply when performing valuation engagements. The AICPA estimates that 25,000 CPAs provide such services.

The standards come after the AICPA Council in late 2003 voted to continue supporting and developing three credentials, the Personal Financial Specialist (PFS), Certified Information Technology Professional (CITP) and Accredited in Business Valuation (ABV) credentials.

After much debate, the American Institute of Certified Public Accountants Council on April 29 overwhelmingly approved an amended resolution that called for enhancing the PFS, CITP and ABV credentials rather than pursuing exit strategies, as had been proposed by the National Accreditation Commission (NAC) and approved by the AICPA’s board of directors.

The AICPA’s statement asked for specific comments on several specific areas. Lieberman said that the NYSSCPA’s Business Valuation Committee would submit comments in the near future, but gave his initial opinion after a first reading.

For example, the statement asks whether commentators believe that their standards conflict with existing standards issued by other organizations.

“On an initial reading, the standards conform to a large degree to existing standards promulgated by the American Society of Appraisers,” Lieberman said. “However, I anticipate that conflicts do exist in the details and, if so, will create a dilemma to those practitioners with both the CPA/ABV and the ASA designations.”

The exposure draft states that a business valuation analyst “should establish an understanding with the client, preferably in writing,” regarding the valuation to be performed. The statement asks whether the standards should allow oral understandings, or recommend or require written understandings.

Among the exposure draft’s procedures for using a real estate appraiser or other specialist in writing a valuation report, the draft recommends that a practitioner evaluate the expert’s qualifications and how his or her work was used in the valuation, when the practitioner engages the expert directly. But in cases where the client engages the expert—which the AICPA says is most of the time—the practitioner should only describe how the expert’s work was used. The AICPA asks whether these rules should be the same regardless of who engages the expert.

Other specific questions include when the rules should require disclosure of events subsequent to the completion of a valuation report but prior to its issuance.

Also, the exposure draft requires that valuation reports be in writing except when reporting in litigation, and asks whether the final statement should permit oral reports, not make a preference between oral or written reports as a best practice, or require all reports in writing.

For further information about the AICPA’s draft Business Valuation standards, please visit www.aicpa.org/BVFLS. Comments can be submitted to Bvstds@aicpa.org.