Article
Top five characteristics to look for when choosing a valuation professional
April 12, 2021 · Authored by Michael C. Massey
Publicly traded companies have many options when selecting a professional to assist with fair value measurements. However, because they may not deal with these issues every day, many CFOs don’t know what they should expect from the professionals they engage and, as a result, often can’t evaluate the level of service they receive.
This can result in working arrangements with professionals who don’t have adequate fair value expertise, potentially causing additional work for the CFO and their team, general frustration, and a significant deficiency or material weakness reported by the auditor.
While there’s no exact answer for selecting a valuation professional to assist with fair value estimates, there are traits to look for that can improve a company’s chances of developing and reporting reasonable, consistent, and reliable results.
Below are five key characteristics CFOs should expect from a valuation professional conducting a fair value measurement for their company.
To learn more about protecting personal finances, preparing for due diligence, or other valuations considerations, see our related articles.
1. Adherence to fair value standards
Fair value standards are part of U.S. generally accepted accounting principles (GAAP), which are continuously revised in attempts to remain relevant to the speed of business.
Recently, under GAAP, the Financial Accounting Standards Board revised accounting standards for revenue recognition, lease accounting, and financial instruments — affecting virtually all companies in the United States, no matter their size or whether they’re public or private.
The Certified in Entity and Intangible Valuations™ (CEIVTM) Mandatory Performance Framework, issued in 2017, outlines not only how to perform the valuation, but also the documentation requirements professionals must use to support the inputs required by the model’s valuation.
Miss any of these important steps, and a control issue may rear its head.
Valuation professionals must be vigilant in maintaining a strong working knowledge of GAAP and the standards that directly affect fair value estimates to be able to provide a reasonable and supportable fair value estimate.
A fair value measurement can often only be considered acceptable and hold up under scrutiny if the valuation professional understands your industry.
In short, if an advisor doesn’t understand their client’s business in addition to the rules that apply to the valuation work itself, their chances of providing a reasonable and reliable estimate of fair value are diminished.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
