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National Association of Certified Valuators and Analysts
The National Association of Certified Valuators and Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines. NACVA training includes Continuing Professional Education (CPE) credit and is available to both members and non-members.

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NACVA Professional Standards —FAQs
In response to frequently asked questions, to better explain how the new Standards apply to everyday practice and to begin a process of providing formal interpretations of the Standards, the Standards Committee is providing the following list of questions and answers. These answers are the Standards Committee's intent for interpretation of the Standards. The Membership Board, Executive Advisory Board and/or the Membership have not approved the Committee's answers. Significant disagreements, if any, that arise from the Standards Committee's published answers to Members' questions will be submitted to a formal interpretation or Standards amendment process.

Q&A 1-11 published 5/30/98 — 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11

Q&A 12-16 published 1/11/99 — 12 | 13 | 14 | 15 | 16

Q&A 17-21 published 4/30/01 — 17 | 18 | 19a | 19b | 20 | 21

Questions & Answers 1-11 published May 30, 1998.

98–1. Q: What are the types of services recognized by NACVA's Standards?

A: The new Standards recognize two broad types of services. These are "Conclusions of Value" and "Other Valuation Services". NACVA's Professional Standards apply specifically to "Conclusions of Value". The AICPA's general and consulting standards adequately cover all situations that are defined as "Other Valuation Services". Proper ethical conduct and due professional care standards apply to everything a CPA and a CVA does. We will be held accountable to the highest standards of conduct prescribed by each of the organizations to which we belong.

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98–2. Q: What are the levels for Conclusions of Value?

A: Conclusions of Value include two recognized levels: "Opinion of Value" or "Estimate of Value". The Standards Committee did not invent these terms. They were defined and recognized by other appraisal organizations before NACVA was founded. An Opinion of Value is intended to be the most unambiguous expression of value and, therefore, can only be expressed as a single value. An Estimate of Value may be stated when, in the sole professional judgment of the Valuation Analyst, an Opinion of Value can not be stated. An Estimate of Value may be stated as a range of values.

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98–3. Q: Are verbal reports of an Opinion of Value or Estimate of Value allowed under the new Standards?

A: Verbal reports stating a Conclusion of Value (an "Opinion of Value" or an "Estimate of Value") are allowed only in a litigation engagement. However, other verbal expressions of value, which are not "Opinions of Value" or "Estimates of Value", are permitted under Other Valuation Services. NACVA's Professional Standards do not govern written or verbal expressions of value, which are not Conclusions of Value as defined in the Standards. Other Valuation Services are governed by the AICPA's general and consulting standards.

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98–4. Q: What are some examples of Other Valuation Services?

A: Preliminary estimates of value, indications of value, calculations of value or consultations regarding the value of a business are examples of expressions of value permitted as Other Valuation Services. These expressions may be stated either verbally or in writing. The valuation analyst should use caution, however, to be certain that the client and other users do not consider these expressions or services as rendering an "Opinion of Value" or an "Estimate of Value". It is bly recommended that written expressions in such situations include an appropriate disclaimer.

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98–5. Q: When does a member know that the litigation waiver applies? Aren't all engagements potentially litigation engagements?

A: All engagements are not considered potential litigation engagements. The litigation waiver is only to apply when the Valuation Analyst is specifically engaged as an expert witness or a consultant in conjunction with a lawsuit, which either has been or is to be filed within the context of the engagement. For the litigation waiver to apply the Conclusion of Value must be subject to discovery and/or cross-examination. The General Standards and Development Standards apply to all engagements when expressing a Conclusion of Value. When not expressing a Conclusion of Value, the AICPA general and consulting standards apply.

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98–6. Q: Why can't an Opinion of Value be expressed as a range?

A: An Opinion of Value is intended to be the most unambiguous expression of a Conclusion of Value. As such, a range of values is simply not appropriate. The Standards Committee believes that a range is better suited for an Estimate of Value, where the valuation analyst has some reservation as to the specific singular value of the business interest.

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98–7. Q: May a Valuation Analyst issue a "qualified" report?

A: No. A Valuation Analyst must define the standard of value, premise of value, assumptions, limiting conditions and scope limitations for each engagement. Disclosure of these items in the report is all the qualification that is allowed, or needed.

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98–8. Q: Does a financial interest include payments for other services performed by the Valuation Analyst or his firm, such as audit or tax preparation fees?

A: The answer to this question is restated in 98-13.

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98–9. Q: What is NACVA's position on using the weighted average of different valuation methods?

A: NACVA has taken no official position on the use of weighted averages. It should be noted, however, that the Internal Revenue Service, the Tax Court and many noted authors discourage such a practice.

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98–10. Q: Can a firm sign a report as the Valuation Analyst?

A: Yes. The individual or individuals who have primary responsibility for the Conclusion of Value must be identified, however. This issue was the item of most concern to NACVA's membership. The new standards allow for either an individual or firm signature of the report. The term "Valuation Analyst", as used in the Standards, refers to both the firm and/or the individuals involved

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98–11. Q: What happened to NACVA's Glossary of Terms?

A: For the time being, NACVA has dropped development of its Glossary in favor of a group effort to develop a single Glossary for the benefit of NACVA, the AICPA, the ASA and the IBA. The group is called the C.L.A.R.E.N.C.E. Group. It expects to have a joint Glossary in the near future.

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99–12. Q: Why did NACVA eliminate the "short-form" report?

A: The appropriate length of discussion for any item in a written report was never established by NACVA under any prior version of our standards. The reference to short-form or long-form in the prior standards was therefore meaningless. The new standards avoid misunderstandings and misconceptions by eliminating use of the terms "short-form" and "long-form". The result is complete freedom for members to vary the length of discussion of each item included in the report and the format of the report as necessary to clearly reflect the specific circumstances. The member should use his or her professional judgement. NACVA's emphasis is on the quality of the report and on proper disclosure, not on length.

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99–13. Q: Are NACVA's Standards for Independence different than the AICPA Standards for Audits, Compilations and Reviews?

A: Yes. NACVA's Standard for Independence follows USPAP and other independence standards, which are established and generally accepted in appraisal practice. The term "financial interest" in NACVA's standards includes a direct equity ownership interest in the subject or client, a loan or note payable from the subject or client and/or an account receivable in excess of one year from the subject or client. If a member or the member's firm has a financial interest in the subject, he or she may still express a conclusion of value, but the financial interest must be fully disclosed in the report. The fact that a member or the member's firm performs other services for the subject or client, including audit or tax preparation services, does not impair independence under NACVA's Standards.

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99–14. Q: What is the difference between a consulting valuation engagement and an engagement that includes a Conclusion of Value?

A: NACVA's Development and Reporting Standards apply only when a member is expressing a Conclusion of Value. A Conclusion of Value is stated as either: 1) an "Opinion of Value", or 2) an "Estimate of Value". In such cases, a member is required to fully comply with all NACVA Standards.

The AICPA General and Consulting Standards apply when a member is providing any other type of valuation service, such as calculating a value or assisting in determining an asking or offering price for a particular business. Results or conclusions in consulting engagements may be stated either orally or in writing. In consulting engagements, do not use the terms: "Opinion of Value" or "Estimate of Value". A member may use terms such as "indicated value", "indicated asking price", "indicated offering price", "preliminary estimate of value", "calculated value", etc. NACVA's Development and Reporting Standards do not apply to consulting engagements. If the results of a consulting engagement are stated in writing, NACVA bly recommends that the writing contain an appropriate disclaimer, such as the following:

"This engagement does not provide a Conclusion of Value as defined by the Professional Standards of the National Association of Certified Valuators and Analysts. More analysis and/or disclosure would be required to express such a conclusion. Therefore, this engagement should not be referred to, used or relied upon outside of the specific consulting purpose for which it was stated."

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99–15. Q: Do NACVA's Standards apply to reports for valuing economic losses or damages?

A: No. NACVA, the AICPA and USPAP do not have specific standards applicable to writing such reports. However, the AICPA Code of Professional Conduct and Statements on Standards for Consulting Services (SSCS) apply to everything an AICPA member or a NACVA member does. If the report is used in Federal Court, Rule 26(a)(2)(B) may be applicable.

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99–16. Q: Do other AICPA reporting requirements, i.e. SSARS, apply when a CPA includes historical or prospective financial statements in the valuation report?

A: There is an exemption in the Statements on Standards for Accounting and Review Services (SSARS) for financial statements submitted in conjunction with litigation (AICPA Professional Standards, AR Section 9100.77). NACVA has a similar exemption for reporting before a trier of fact.

Outside of litigation engagements, however, there is currently no authoritative answer to be found. Some experts say SSARS is applicable, some experts say it is not. The Accounting and Review Services Committee of the AICPA is expected to release an exposure draft providing guidance sometime soon. Until then, the treatment of such financial statements in a valuation report is subject to the professional judgment of the member. However, disclosure of who prepared the statements is required to be included in the valuation report.

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01–17. Q: Are engagement letters required in litigation cases?

A: No, there are no particular requirements for engagement letters in litigation. While there is a requirement that there be an effective understanding and communication of the scope of the litigation engagement with the client, a written communication is encouraged, but not required. It may be oral.

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01–18. Q: How does the litigation waiver on reporting affect my valuation analysis?

A: It doesn't. The waiver applies to reporting only, not to the valuation itself. All normal valuation steps and procedures must be followed in order to express a Conclusion of Value (either an Opinion of Value or an Estimate of Value), regardless of the reporting of that conclusion. See also 98 - 7.

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01–19a. Q: In litigation related engagements, if a Valuation Analyst is engaged by the plaintiff's and defendant's attorneys, jointly, and/or the court to provide valuation services and the analyst's opinion is subject to discovery and or cross examination, what standards apply?

A: If the Valuation Analyst is required to provide a Conclusion of Value (either an Opinion of Value or an Estimate of Value), NACVA's Professional Standards apply. If the analyst is not required to provide a Conclusion of Value, the engagement would be considered as Other Valuation Services governed by the NACVA's standards. The valuation analyst should use caution, however, to be certain that the attorneys and/or court do not consider these expressions or services as rendering an Opinion of Value or an Estimate of Value. when determining the type and format of report to be produced.

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01–19b. Q: Litigation related engagements, if the Valuation Analyst is required to provide a written report, what reporting standards apply?

A: The engagement would be considered a litigation engagement. As the analyst's opinions are subject to discovery and/or cross examination, NACVA's reporting standards would not apply (all other NACVA standards will apply). Whether the analyst needs to provide a written report and what form such written report should take depends upon the agreement between the client(s) and the analyst. In addition to complying with such agreement between the parties, the analyst is encouraged to clarify and consider the expectations of the client(s)

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01–20. Q: What if the Valuation Analyst's services consist of critiquing a valuation report(s) prepared by another expert witness?

A: If the Valuation Analyst is not required to provide a Conclusion of Value but is only required to provide commentary on another expert witness' valuation report, such services would constitute Other Valuation Services governed by NACVA's general and consulting standards. Neither NACVA's general nor reporting standards apply to such engagement.

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01–21. Q: How does the litigation waiver apply in situations where the valuator has been appointed directly by the court or other trier of fact and the parties to the disputed matter will not have an opportunity to depose or cross examine the work of the valuator?

A: Since the valuator is not subject to deposition or cross examination the litigation waiver would not apply to this situation and the valuator would be subject to the Reporting Standards just as if it was not a litigation related matter.

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