Types of Business Valuation Engagements
INNP Consulting > Insights > The Asset, Income, and Market Approaches to Value a Business
March 16, 2020
What Are the Two Types of Professional Business Valuation Engagements?
BY ANASTASIA BOURGEOIS
In accordance with the Professional Standards of the National Association of Certified Valuators and Analysts (NACVA), business valuation services include:
1. Valuation Engagements
A Valuation Engagement requires that a professional business appraiser considers all three valuation approaches (click here to read about the Three Main Business Valuation Approaches), and apply valuation approaches and underlying methods deemed in the valuation expert’s professional judgment to be appropriate under the specific circumstances of the engagement. A Valuation Engagement results in a Conclusion of Value. Valuation Engagements are more costly, and involve the “full” valuation process and more in-depth research.
Valuation Engagements result in a Detailed or Summary Valuation Report. A Detailed Valuation Report is a complex formal report with a higher level of detail, and may exceed 100-200 pages. The Detailed Valuation Report is structured to provide sufficient information to permit intended users to understand the data, reasoning and analyses underlying the valuation analyst’s conclusion of value. A Summary Valuation Report represents an abridged version of a Detailed Valuation Report with lower level of detail.
Typically, Valuation Engagements are used for valuation purposes such as estate and gift tax, litigations, mergers and acquisitions (M&A), employee stock ownership plans (ESOPs), and investment banking fairness opinion.
2. Calculation Engagements
A Calculation Engagement takes place when the client and a professional business appraiser agree to specific valuation approaches, methods, and the extent of selected procedures. A Calculation Engagement results in a Calculated Value.
Calculation Engagements are less costly, more limited in scope, require less in-depth research, and may or may not represent the actual value of a business. Calculation Engagements result in a Calculation Report, which may be presented as a set of calculation schedules.
Calculation engagements are most appropriate for internal company planning, preliminary M&A or transaction analysis, preliminary use for mediation or negotiations in litigation, and buy-sell agreements that specify the use of a formula.
National Association of Certified Valuators and Analyst, NACVA (2015). Professional Standards. Retrieved from: http://web.nacva.com/TL-Website/PDF/NACVA_Professional_Standards_Incl_Review_Stnds_Effective_8-1-15_Final.pdf