To Value or to Calculate – That is the Question

To Value or to Calculate – That is the Question

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An attorney is looking to engage a valuation analyst to determine the value of an asset for a dispute matter. They reach out asking the valuation analyst to perform a calculation of value, however, is a calculation of value the proper level of services or should they engage in a full valuation? Which type of engagement should one select? The answer lies in the purpose and potential end game of the engagement.

Many believe that a calculation of value and a full valuation are one in the same, however, they are in fact different. A full valuation is valuing a subject interest where the valuator has full control on the approaches, methods and procedures they deem fit. Full valuations are used when there is third party reliance and a conclusion on the value is needed and presented. A calculation of value is valuing the subject interest based on agreed upon procedures, methods and approaches either presented by the client or in compliance with a contract or agreement. Calculation of value engagements are typically used when there is no third party reliance.

Full valuation engagements require more procedures, including analyzing the subject interest, considering and applying the appropriate valuation approaches and methods and preparing and maintaining the appropriate documentation. Full valuation reports can be presented in either detailed or summary reports. Detailed valuation reports are the highest level reports as it includes extensive detail regarding the analysis performed, economy and industry market data, opinions, and overall conclusions. Summary reports provide an overview of the valuation performed but exclude much of the underlying detail. These reports are acceptable under certain circumstances and it should contain verbiage which state the scope of the detail provided. Summary reports are frequently requested by clients as they are less costly than detailed reports.

In a calculation of value engagement, the valuator and client or counsel agree to the methods and approaches to be utilized. These engagements are often performed using hypothetical conditions, assumptions and/or limited conditions. These engagements are less in scope and result in a report which is smaller than a full valuation. When a calculation of valuation report is prepared, the valuation analyst should clearly state all factors used for arriving at a value. The report should also clearly state that the calculations do not represent an opinion of value and that if a full valuation is completed the results may be materially different. Due to the lesser scope, calculation of value engagements are less costly than a full valuation.

A variety of factors need to be discussed before one can make a decision on the level of services required value the subject interest, including the purpose of the engagement, the documents accessible to be produced and the funds available. Full valuation engagements are the preferred level of service, especially by the courts and the IRS, as they are the most detailed and accurate and they are free of bias. However, full valuation engagements are more costly.

Calculation of value engagements may be preferred for engagement where complete financial information is not readily available. It may also be used for mediation or settlement purposes in certain marital dissolutions and shareholder disputes. Conversely, these engagements may not provide the level of reasonable certainty or reliability due to the limited scope.

If situation arises where a valuation of an asset is needed, it is important to understand all the facts surrounding the engagement. Purpose, audience, funding and documents available should all be considered before engaging in any valuation. If the inappropriate scope is selected for an asset appraisal, it could result in unnecessary costs for client or issues for the analyst defending the value in court.

Carleen J. Gaskin, CPA, CFF, Partner Melissa Soranno, CPA
T (609) 520 1188
[email protected]


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