How can you evaluate the reliability of a valuation report?

1 Check the credentials

The first thing to look for in a valuation report is the credentials of the appraiser who prepared it. The appraiser should have relevant education, training, experience, and certification in the field of valuation. For example, some common designations for professional valuers are CFA (Chartered Financial Analyst), ASA (Accredited Senior Appraiser), ABV (Accredited in Business Valuation), and CVA (Certified Valuation Analyst). These credentials indicate that the appraiser has met certain standards of competence, ethics, and quality control in performing valuations.

2 Review the methodology

The next thing to examine in a valuation report is the methodology used to arrive at the value estimate. The methodology should be appropriate for the type, purpose, and context of the valuation. For example, some common methods for valuing businesses are the income approach, the market approach, and the asset approach. Each method has its own advantages and disadvantages, and may require different inputs, assumptions, and adjustments. The valuation report should explain the rationale for choosing a particular method, and provide sufficient details and references for the calculations and sources used.

5 Verify the compliance

The fifth thing to verify in a valuation report is the compliance with the applicable standards, regulations, and guidelines. The compliance should ensure that the valuation report is consistent, objective, and independent. For example, some common standards and guidelines for valuing businesses are the USPAP (Uniform Standards of Professional Appraisal Practice), the IVS (International Valuation Standards), and the SSVS (Statement on Standards for Valuation Services). The valuation report should state the scope, purpose, and intended use of the valuation, and disclose any conflicts of interest, limitations, or contingencies that may affect the value estimate.

6 Ask the questions

When reading and understanding a valuation report, it is important to ask questions that clarify, confirm, or challenge the value estimate and the underlying assumptions and methods. For example, you may want to know how the discount rate, growth rate, and terminal value were determined. Additionally, you may be curious about how synergies, goodwill, and intangible assets were accounted for. It is also important to consider size, liquidity, and marketability of the business as well as the volatility, uncertainty, and complexity of the market. Lastly, you should inquire about tax, legal, and regulatory issues. The valuation report should provide clear and concise answers to these questions or direct the reader to further information.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?