How the professional valuation standards structure a contested valuation, from the engagement definition to the report, and how they answer cross-examination.
Economic · 11 min read
A business valuation prepared for litigation is tested against two things: the governing legal framework, which sets the standard of value, the valuation date, and the treatment of discounts, and the professional valuation standards, which prescribe how the engagement is defined, how the approaches are applied, and what the report must contain. This paper describes how those standards structure a contested valuation of a closely held interest, where opposing valuators most often diverge, and how a report built to the standards answers the questions asked on cross-examination.
Two valuators can reach different conclusions from the same financial statements, and in litigation they usually do. The professional standards published by the accounting and valuation bodies exist to make those differences visible and testable: they require the valuator to define the engagement, to consider each recognized approach, to document the information relied on and the adjustments made, and to report the assumptions and limiting conditions. A valuation that follows the standards can be examined on its choices; one that does not leaves the court to guess at what was done, which is the situation a gatekeeping framework is designed to prevent.
The standards are not the law. The governing framework decides the standard of value, the valuation date, and whether discounts apply, and the valuator applies those decisions. The standards govern how the valuation is then performed and reported.
Related practice area: Business Valuation
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