Evaluating an appraiser's report.

• Author: Ellentuck, Albert B.

A good valuation report should be well-written and well-organized, and should satisfy professional and engagement requirements. Valuation controversies are often decided by a court, and the appraisal report may be the only tangible evidence of how the value was determined. Thus, its appearance can be critical.

A well-written report has several distinct qualities. Such a report is:

1. Thorough. It includes all relevant data and analyses that affected the conclusion of value.

2. Balanced. It discusses both positive and negative factors affecting the company's value. Although the client may have a vested interest in the value being relatively high or low, the appraiser should remain unbiased. Accordingly, the report should be an impartial discussion of all relevant factors. 3. Readable. The report's readers should be able to follow the work done and the conclusions reached. That means the report should be written in clear and concise terms, with minimal use of technical jargon. If jargon is necessary, it should be properly defined. Any data presented in the report should be adequately described so that others can understand it.

4. Coherent. The report should flow logically from the data presented to the final conclusion. Also, the report's conclusions and analyses should be internally consistent.

5. Well-supported. The report should thoroughly document each valuation process step and conclusion. That means presenting detailed calculations and identifying the data sources used, so that another appraiser can follow the process steps and reach a similar valuation.

   Recognizing Common Errors

   Sometimes more than one business valuation report is prepared. This can occur, for example, when the parties disagree on the appraiser, the valuation approach or a valuation assumption. Differences among a decedents heirs (or between a taxpayer and the IRS) may require a court to determine the value based on differing reports. Courts will often ignore a report with obvious deficiencies. Practitioners can add value to a valuation engagement by critically reviewing the business valuation report for one or more of the following common errors:

1. Failure to follow the definition of value. Business valuation terms are used in most valuation reports or appraisals to inform the reader as to how the value of the business was determined. The stated definition of value in the report is important, as the value can vary significantly depending on which definition of value is...