There is a growing need for valuation services among small businesses. There is a variety of reasons why business owners need to know the value of businesses, business interests and intangible assets, including sales transactions, financing, taxation, financial reporting and litigation. It’s critical for these business owners to use an appraiser who follows professional standards and guidelines, so that they are confident that the appraiser’s methods and conclusions are consistent and accurate.
VS Sections 100 and 9100
The AICPA’s Statement on Standards for Valuation Services No. 1 (SSVS 1) was issued in June 2007, after almost six years in the making. It became effective for engagements accepted after January 1, 2008. Effective December 15, 2014, SSVS 1 was codified into the AICPA’s professional standards as Valuation Services (VS) Sections 100 and 9100.
The only difference between SSVS 1 and VS Sections 100 and 9100 is to how the standard is organized in the AICPA Professional Library.
The AICPA’s valuation standards took a long time to develop because of the intense scrutiny they were under by almost every major sector of the accounting community, including auditors, tax professionals, litigation specialists, financial planners and other constituencies. Each of these sectors had to sign off on the finished product.
What it means for small business owners
First, it offers peace of mind. The AICPA has more than 100 years of experience in creating and writing standards like audit and tax standards. Due to this experience, a very high level of diligence was used in the creation of the new valuation standards.
It also means that if a CPA performs a valuation for a business, business ownership interest, or intangible asset, it will be done in compliance with the VS Section 100, resulting in consistent practices among valuators.
Valuators must be highly knowledgeable and skilled and able to act with professional competence, in order to adhere to the AICPA standards.
The conclusion of value or calculated value is based on the valuator’s professional judgment. For a small business owner, it can be comforting to know that the valuator they’ve hired has a specific set of rules to follow, and that they are qualified to give a conclusion of value.
Other Appraisal Standards
In addition to the AICPA rules, there are other standards within the appraisal community, such as the Uniform Standards of Professional Appraisal Practice (USPAP) issued by the Appraisal Standards Board of the Appraisal Foundation and the standards issued by the National Association Of Certified Valuators and Analysts (NACVA). Sometimes professional valuators will use these additional standards, as well as VS Sections 100 and 9100. These standards often overlap and even complement each other.
It’s very important for business owners to have a basic understanding of appraisal standards before they hire experts to value their businesses, business interests or intangible assets. By using professional experts who are credentialed and adhere to established appraisal standards, they will have greater peace of mind that the results are credible. To learn more about valuation standards, and how to have a business valued, call Filler & Associates.