Business valuation under the USPAP 2020 – updates to the Restricted Appraisal format

The 2020 – 2021 update to the venerable USPAP standards is out and there are some changes you should know about.

Perhaps the most noteworthy is the change to the format of the Restricted Appraisal report. It is now allowed to include additional parties as the intended audience besides the client. This works as long as each of these additional Restricted Report recipients are clearly identified by name in the report. Note that you can not lump whole groups of prospective readers together by type though.

Why growing popularity of the Restricted Report? It is results oriented and cuts to the chase.

Why this new revision? Because Restricted Reports have become quite popular with both business clients and their appraisers. They are more economical in many situations and suffice whenever a “results oriented” reporting format is desired.

This is the case for many business clients who are very familiar with the business being valued and do not need the additional detail best reserved for outsiders.

The Restricted Report readers are assumed comfortable with the limitations of the format. In addition, this understanding between the appraiser and the intended audience of the reports means that the warning language formerly referring to the existence of the appraiser’s workfile may be relaxed.

Caveat: USPAP Restricted Report format does not meet the IVS standard requirements.

If you are valuing businesses internationally and want to comply with both the USPAP and International Valuation Standards (IVS), the Restricted Appraisal report format will not work. In such cases you would need to stick to the more comprehensive Appraisal Report.

Watch out for the subtle differences in terminology while doing business valuations that meet both standards. With a bit of diligence it should be reasonably straightforward to accommodate these two sets of requirements.

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