With a wave of Baby Boomers nearing retirement, there is a good chance CPAs will come across clients who need a business valuation. A valuation may be necessary for gift and estate purposes, transfers of ownership, tax planning purposes, and divorce. CPAs need to determine whether they should perform the valuation themselves or refer the work to a more qualified CPA. Before accepting the engagement, CPAs should consider:
Do you have professional competence? Rule 201A of
the AICPA Code of Professional Conduct states that a member shall
“[u]ndertake only those professional services that the member or the
member’s firm can reasonably expect to be completed with professional
competence.” Paragraph 11 of the AICPA Statement on Standards for
Valuation Services No. 1, Valuation of a Business, Business
Ownership Interest, Security, or Intangible Asset, (tinyurl.com/2uk4gt2) further
clarifies that “[a] valuation analyst should possess a level of
knowledge of valuation principles and theory and a level of skill in
the application of such principles that will enable him or her to
identify, gather, and analyze data, consider and apply appropriate
valuation approaches and methods, and use professional judgment in
developing the estimate of value.”
Are you independent? CPAs should
review Interpretation 101-3, Performance of Nonattest
Services, of the code. Independence would be impaired if a member
performs an appraisal, valuation, or actuarial service for an attest
client where the results of the service, individually or in the
aggregate, would be material to the financial statements, and the
appraisal, valuation, or actuarial service involves a significant
degree of subjectivity.
For new clients, CPAs should ask themselves the following:
If you accept this engagement, will there be client
considerations that could impair your objectivity in appearance or
fact? If CPAs are asked to perform a valuation for the
spouse of a major client or the client in a divorce proceeding, the
client may have an expectation that the CPA will arrive at a value
that is advantageous to him or her. CPAs are required to be objective
in a valuation engagement. In divorce proceedings, in which emotions
run high, CPAs risk alienating a major client.
Have you discussed the cost/benefit with the client so he or she
understands the fees to be charged? This is a tough
discussion, but it is one a CPA should have with a client. A quality
business valuation can result in considerable professional fees being
charged to the client. If the client is a minority shareholder,
sufficient funds may not be available to cover your fees. As with any
engagement, the CPA should assess of the ability to collect his or her
fees on a timely basis.
What is the reputation of the client or referral
source? A CPA’s reputation is his or her most valuable
asset. Strong consideration should be taken when evaluating potential
clients to ensure that they complement the CPA’s positioning in the marketplace.
Have you reviewed any regulations that might affect the
valuation? The IRS, the U.S. Small Business
Administration, and the U.S. Department of Labor have regulations
related to business valuations. CPAs should ensure that they are aware
of all applicable regulations and can comply accordingly.
—By Eddy Parker, CPA, CGMA, ( fparker@aicpa.org ) an AICPA technical manager for forensic and valuation services.
(The AICPA Forensic & Valuation Services Conference will be
held Nov. 11–13 in Orlando, Fla. Details, including registration
information and agendas, are available at tinyurl.com/d2t58wo.)
