When choosing a professional to help with fair value calculations, publicly traded companies have a wide range of possibilities. However, because they do not deal with these challenges on a daily basis, many CFOs are unsure of what to anticipate from the experts they hire and frequently are unable to assess the quality of the service they receive.
The CFO and their team may have to do more work, feel more frustrated, and the auditor may find a severe defect or material weakness as a result of working arrangements with experts who lack sufficient fair value competence.
There is no one right way to choose a valuation expert to help with fair value estimates, but there are qualities to look for that can increase a business’ chances of producing and disclosing reasonable, dependable results.
The following are the main qualities CFOs should look for in a valuation partner doing a fair value measurement for their business.
Compliance to Fair Value Standards
US generally accepted accounting principles (GAAP), which are regularly updated to stay current with the pace of business, include fair value criteria. Recent revisions by the Financial Accounting Standards Board to GAAP’s accounting standards for financial instruments, lease accounting, and revenue recognition have an impact on almost all American businesses, regardless of their size or status as public or private. The Certified in Entity and Intangible ValuationsTM (CEIVTM) Mandatory Performance Framework, published in 2017, provides instructions on how to conduct the valuation as well as the documentation standards that experts must follow to support the inputs needed for the valuation of the model.
If you skip even one of these crucial procedures, a control problem can develop. To be able to deliver a reasonable and credible fair value estimate, valuation specialists must be careful in maintaining a solid working understanding of GAAP and the standards that directly affect fair value estimates.
Active Involvement in Standards-Setting Organizations
Working with experts who are leaders and participants in organizations that set standards, such as the American Institute of CPAs (AICPA), and professional bodies, such as The Appraisal Foundation’s Appraisal Issues Task Force (AITF), is advantageous for businesses.
The AICPA creates the CPA test and establishes the ethical and auditing standards for the accounting profession. When creating new accounting standards and valuation techniques, regulators and standard-setters can draw on the experience of the AITF.
Interpretation is unavoidably necessary for the most recent rules established by the AICPA and regulators. It is therefore more likely that a company will acquire a fair value estimate that meets with current standards, making it both reviewable by an audit firm and repeatable, when engaging with a valuation professional who is active in these professional organizations.
Strong Source of Referrals
The best accounting firms are frequently chosen by CFOs to do audit services, although independence laws prevent auditors from performing the following tasks:
- Internal audit
- Enterprise resource planning system selection
- Sarbanes-Oxley Act, also known as SOX, compliance
While independence issues restrict an auditor from performing fair value measures for clients, an auditor can frequently recommend a valuation expert whose work they have successfully reviewed—and who may work for a rival firm—knowing they will offer a high level of service and knowledge.
A corporation can typically count on a referred source to do high-quality work because an auditor’s recommendation puts their firm’s reputation on the line.
It might be difficult for independent valuation experts to keep up with the changing GAAP requirements as they apply to fair value. As a result, CFOs have a reason to ask their auditor for input on past interactions with companies that perform services at a fair price.
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Greater Partner Focus
Companies should anticipate a partner investing in their partnership rather than handing off a fair value assignment to a junior analyst right away.
Unfortunately, sometimes, the partner, director, or senior manager, who started the relationship may vanish and hand over this type of work to someone more junior—someone whose time isn’t valued as highly, or who’s simply less busy.
Depending on the size and structure of a firm, a fair value estimate project can need staff assistance, but it’s also normal to anticipate an acceptable level of partner involvement.
A high staff-to-partner ratio could mean that a partner will, out of obligation, use the majority of their time examining the work of others rather than personally influencing and guiding your findings.
Industry Knowledge and Expertise
A fair value measurement is frequently only deemed acceptable and able to withstand scrutiny if the valuation expert is familiar with your industry.
In other words, the chances of an advisor delivering a reasonable and trustworthy estimate of fair value are reduced if they don’t comprehend the business of their customer in addition to the laws that govern the valuation work itself.
Credo – Your Best Business Valuation Partner
Find the best valuer for the job! We, at Credo, customize the scope of our business valuations to meet the individual requirements of our clients and the objectives of the engagement. Our valuation report includes comprehensive illustrations that back up our valuation result and, when necessary, gives an overview of the firm, industry, and economy. It also examines value drivers and describes the analysis’ methodology, inputs, and assumptions. If questioned, we offer our clients additional help, including acting as an expert witness at trial. The value study is sound, and the report is defendable.
We regularly help our clients with the valuation of enterprises, business interests, tangible and intangible assets, and complicated, challenging-to-value instruments. Having dealt with every challenging valuation situation there is, our professionals are actively involved in the valuation industry’s efforts to create best practice guidelines and provide advice on valuation implementation challenges to regulatory and standard-setting agencies. We can meet any demand for business or asset appraisal as we are qualified and experienced in doing so!
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