Certified Public Accountants who provide business valuation services can offer a valuation engagement or a calculation engagement as defined by the statement on standards for valuation services no.1 (SSVS No.1) issued by the American Institute of Certified Public Accountants (AICPA). All members of the AICPA who provide business valuation services are required to follow this standard.
Because there are significant differences between a valuation and a calculation engagement, there are also significant differences in the reliability in results. The purpose of the business valuation will ultimately determine which level of service is required.
A valuation engagement requires more procedures than a calculation engagement and is more expensive to prepare. A valuation engagement calls for the valuation analyst to estimate the value of the subject interest and the analyst is free to apply the valuation approaches (market, income, or asset) and methods based on professional judgment that are considered most appropriate. The results of the valuation are then expressed in a summary or detail report as a conclusion of value as either a single amount or as a range of values.
A calculation engagement requires fewer procedures than a valuation engagement and is less expensive to prepare. A calculation engagement requires the valuation analyst and the client to agree on the valuation approaches and methods that will be used as well as the extent of procedures the analyst will perform in the process of calculating the value of the subject interest. The results of the calculation are then expressed in a report as a calculated value as either a single amount or range of values.
A business valuation engagement and report is most appropriate in the following circumstances:
- Estate and gift filings
- Divorce proceedings
- Shareholder disputes
- Business economic damage calculations
- Employee stock ownership plans
As a calculation engagement does not provide the same level of assurance as a valuation engagement, it is considered appropriate for settlement and mediation purposes, tax and estate planning, and as support for an acquisition, or sale of a business.
Should you need business valuation assistance or have questions, please call one of our credentialed professionals at (615) 822-8342 or contact us via email.