Business valuation standards

If you are preparing a business appraisal for yourself or a client, following established business valuation standards could lend considerable credibility to your work product.

Over the years the business appraisal profession has come up with a number of standards seeking to define everything from the methodologies to the scope and format of business valuation reports. Here are the main ones that are widely recognized by the business appraisers, courts, and tax authorities:

Uniform Standards of Professional Appraisal Practice (USPAP)

This is perhaps the best known of the standards covering the valuation of businesses and professional practices, among other types of assets. It is published and regularly updated by the Appraisal Foundation. USPAP is widely used throughout the world, either directly or as part of national business valuation standards.

Standard 9 defines the approaches and methods to be used when valuing a company. It also covers the definitions and premises of value that serve as the foundation of any defensible business valuation.

Standard 10 specifies what a business appraisal report should look like. Hence, you should review both standards to make sure your business valuation is USPAP compliant.

American Institute of CPAs Statement on Standards for Valuation Services (AICPA SSVS No 1)

Created by the AICPA and made public in 2008, this is a newer standard intended to be followed by the AICPA members. Since many business appraisers are actually accountants, this standard has rapidly grown in importance.

As you would expect from an accounting organization, AICPA SSVS No 1 offers considerable level of detail in its definition of professional valuation engagements, methods to be used, and structure of business valuation reports. In addition, there are plenty of materials explaining how you can apply SSVS No 1 in practice.

International Valuation Standards (IVS)

This standard is published by the International Valuation Standards Board. As the name implies, the organization aims to create a set of guidelines that help make business appraisals uniformly applicable regardless of where they are done.

IVS and National Business Valuation Standards

A number of countries have incorporated IVS into their national business valuation standards. Notable among these are the UK, Australia, New Zealand and South Africa. In addition, there is growing support for IVS in just about every developed and developing country.

This makes IVS a very important standard indeed and well worth your attention, especially if you plan to share your work with international clients or colleagues.

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