SSVS 1: dealing with the impact of the new business valuation standards.

• Author: Andersen, James A.
• Position: Statement on Standards for Valuation Services No. 1

After nearly five years of arduous work, the AICPA has issued its much anticipated business valuation standard--Statement on Standards for Valuation Services No. 1 (SSVS 1).

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Because of the AICPA's close ties to the financial community's rule makers--and to the IRS through its members' tax services to clients--the need for specific AICPA business valuation standards has been recognized for some time.

There has been a need to provide clear guidance in the valuation arena, particularly in regards to practitioners who perform valuations on a part-time basis. The AICPA Consulting Services Executive Committee wrote this standard to improve the consistency and quality of practice for all AICPA members performing business valuations. AICPA members will be required to follow this standard when they perform engagements to estimate value that culminate in the expression of a conclusion of value or a calculated value.

THE BV ENGAGEMENT

To begin, we need to understand the various types of client engagements that may require business valuation services:

* Transactions, or potential transactions, such as acquisitions, mergers, leveraged buyouts, initial public offerings, employee stock-ownership plans and other share-based plans, partner and shareholder buy-ins or buyouts, and stock redemptions;

* Litigation matters, such as marital dissolution, bankruptcy, contractual disputes, owner disputes, dissenting shareholder and minority ownership oppression cases, and employment and intellectual property disputes;

* Compliance-oriented engagements, including financial reporting and tax matters such as corporate reorganizations; S corporation conversions; income, estate and gift tax compliance; purchase price allocations; and charitable contributions; and

* Planning-oriented engagements for many of the above-mentioned matters.

DEFINING THE TERMS AND SERVICES

Next, we need to understand the scope of the statement and what some of the basic terms for valuation mean. The term "engagement to estimate value" refers to an engagement or any part of an engagement (for example, a tax, litigation or acquisition-related engagement) that involves estimating the value of a subject interest.

An engagement to estimate value culminates in the expression of either a "conclusion of value" or a "calculated value." A member who performs an engagement to estimate value is referred to as a "valuation analyst." All valuation analysts need to be aware of any...