Selecting a qualified business appraiser


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  • | 12:00 p.m. October 21, 2013
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In the practice of law, medicine or accounting, as well as other professions, one cannot proclaim expertise without having met rigorous training, testing and experience requirements.

Unfortunately, this is not the case with the practice of business valuation.

As a result, many perform business appraisals on behalf of third parties without even the minimum training and experience requisite of an expert. Furthermore, there is no business valuation-specific college degree or course major.

And those who have attained professional designations in related disciplines such as real estate appraisal, personal property/equipment appraisal, accounting, economics, financial planning and business brokerage, though having achieved expertise in their respective fields, are not qualified to perform business appraisals based solely on the education and background typical of the professions in which they practice.

Business valuation is an area of specialized skill requiring specialized training and experience to achieve competence.

The demand for business valuation services, which are typically performed in the context of taxation, litigation and transactions, has grown steadily over the past fifteen years.

More recently, the scope of the profession has been expanded under the category of financial reporting where, in certain cases, corporations are now required under generally accepted accounting principles (GAAP) to perform annual valuations for the purpose of testing for goodwill impairment.

Along with this increase in demand has come a corresponding “raising of the bar” with regard to competency requirements for business appraisers, particularly within the category of litigation. For example, in the distant past, a federal court looked at whether the underlying basic principles of evidence were generally accepted within the expert’s profession.

This is known as the Frye standard [Frye v. United States, 293 F. 1013 (D.C. Cir. 1923]. However, this relatively lax environment for rules of evidence was altered in 1993 when the Supreme Court ruled that federal courts must determine whether expert witness testimony will be admitted in any particular case based on a three-part test:

The court must determine if (1) the testimony is based upon sufficient facts or data; (2) the testimony is the product of reliable principles and methods; and (3) the witness has applied the principles and methods reliably to the facts of the case.

This is known as the Daubert standard [Daubert v. Merrell Dow Pharmaceuticals Inc., 509 U.S., 572, 589 (1993)]. On June 5, Gov. Rick Scott approved HB 7015. This bill, which became effective on July 1, abolished the Frye standard and adopted the Daubert standard relating to expert witness testimony in Florida.

The Internal Revenue Service has also displayed heightened vigilance in its demand for work product quality from business appraisers.

The service generally expects appraisals to be performed in accordance with Uniform Standards of Professional Appraisal Practice and IRS Revenue Ruling 59-60.

Further, in certain cases, any person who provides business valuation estimates that are used for federal tax purposes and which are determined by the service to be problematic may be subject to financial penalties; the appraiser could even be barred from performing IRS-related services [IRC §6701 and §6695(a)].

Nevertheless, there are many who stand ready and willing to provide an estimate of value for a fee.

They often include business brokers and other intermediaries, life insurance agents, accountants, financial planners, business consultants, real estate appraisers, bankers, lawyers, and college professors.

However, those who have attained competency in business valuation will usually have earned a professional designation from a reputable institution that attests to the person’s qualifications. Those designations are the CBA (Certified Business Appraiser from the Institute of Business Appraisers), the ASA (Accredited Senior Appraiser for business valuation from the American Society of Appraisers), the CPA/ABV (Certified Public Accountant/Accredited for Business Valuation from the American Institute of Certified Public Accountants) and the CVA (Certified Valuation Analyst from the National Association of Certified Valuators and Analysts).

A professional who holds any one of these has demonstrated expertise in the field of business valuation.

Roger Birong is principal of Birong Associates LLC, a business valuation consulting practice. He can be reached at (904) 641-3373

or through the firm’s website at birongassociates.com.

 

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