In the current climate of corporate governance, management is being held to a
higher level of accountability. Due to concerns over independence and conflicts
of interest, many companies have elected to engage outside specialists for
non-audit services, such as valuation work. Additionally, the Financial
Accounting Standards Board (FASB), in its efforts to improve transparency in
financial reporting, has been emphasizing fair value recognition in recent
pronouncements. All indications show that this move to fair value accounting is
likely to continue in future standards. As fair value requirements continue to
increase, finding a reputable valuation provider has become a concern for many
companies. What should you look for when choosing a valuation firm? How do you
know if your valuation provider is qualified? The following factors should be
considered when selecting a valuation firm:
Independence
The independence of the valuation provider is critical to selecting a valuation
firm. The firm should be experienced in providing independent and objective
opinions of value. We confine our association with clients entirely to
value-related advisory services. In particular, we neither act as a broker nor
dealer upon successful completion of a transaction for compensation. Our
opinions are free from conflicts of interest and credible to lenders,
shareholders, auditors, regulators, and courts.
With respect to services such as fairness opinions, the independence of the
provider becomes even more important. The NASD is concerned about investment
banks providing fairness opinions on deals from which they stand to collect a
material success fee. For this reason, the NASD issued a new rule (Rule 2290)
earlier this year which addresses disclosures and procedures concerning the
issuance of fairness opinions.
Credentials
The valuation firm's professionals should be credentialed. Designations which
are relevant to the valuation profession include chartered financial analyst
(CFA), accredited senior appraiser (ASA), accredited in business valuation (ABV),
and member of the Appraisal Institute (MAI).
Experience
Consider how long the firm has been in existence and the collective experience
of its professionals. Are engagements staffed with senior professionals? The
firm's professionals should also have experience providing expert testimony with
respect to valuation matters.
What types of engagements has the firm completed? A reputable firm will be
experienced in complex engagements. Valuations for SFAS 141, 142, and 144
purposes, in particular, require the judgment and skill of an experienced
valuation professional. Does the firm have experience working with audit firms?
Have the firm's engagements, such as allocation of purchase price assignments,
passed audit review? In recent years, the valuation industry has experienced a
significant increase in time allocated to auditors in the review process. Given
the complexity of many valuation assignments, communication between a company's
audit team and its outside valuation experts has become critical.
Supportable Valuations
A reputable valuation firm is able to provide supportable valuations that can
withstand scrutiny from the Securities and Exchange Commission (SEC), the
Internal Revenue Service (IRS), and other regulatory bodies.
Valuations of fixed assets should comply with the Uniform Standards of
Professional Appraisal Practice (USPAP). In addition to complying with USPAP
standards, our professionals are able to meet the requirements prescribed by the
Financial Institutions Reform, Recover, and Enforcement Acts of 1989 (FIRREA).
Knowledge of Emerging Issues
Valuation specialists should be versed in current accounting requirements as
well as pending accounting pronouncements. Members of our professional staff
belong to the Appraisal Issues Task Force (AITF), a group of valuation
professionals which meet on a regular basis to discuss valuation issues. Members
of the FASB and the SEC are usually present at these meetings. Our professionals
have provided input to the FASB with respect to valuation matters pertaining to
financial reporting rules.
Rely on the Experts
At Valuation Research, our professionals average more than 20 years of
experience. Our professional staff has the knowledge and expertise to handle the
most complex valuation assignments. For more information on our services,
contact your Valuation Research representative or John Bintz at (312) 214-3213.VR
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