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Valuation Engagement vs. Calculation Engagement

When hiring a valuation specialist to estimate the value of a company or interest, there are primarily two types of valuation engagements that we, as CPAs, are able to issue. With the exception of litigation matters, the AICPA's Statement of Standards for Valuation Services No. 1 (SSVS #1) states that there are two types of valuation engagements: a valuation engagement and a calculation engagement

A valuation engagement requires more procedures than a calculation engagement. The main difference between the two is that in a valuation engagement, the valuation analyst is free to apply the valuation approaches (ie: income, asset and/or market approaches) he or she deems appropriate under the circumstances. This is often referred to as an "Opinion of Value."

For a calculation engagement, the valuation analyst and the client agree on the valuation approaches and methods that will be performed in estimating value. In other words, there is a scope limitation on the procedures and methods applied. This contrasts with the valuation engagement where no scope limitation is imposed. This is often referred to as a "Calculated Value."

Because the scope of the work is less, the fees for a calculation engagement is generally less than the fees charged for a valuation engagement. However, depending on the purpose of the valuation, caution should be used when settling for a calculation engagement since it doesn't call for all of the procedures required in a valuation engagement.

A calculation engagement is required to include disclaimer language that "Had a valuation engagement been performed, the results might have been different." It is highly recommended that calculation engagements not be used in litigation or IRS related matters (where an "Opinion of Value" is generally preferred). 

Regardless of what type of valuation is performed, you should always understand the standards by which a professional is required to adhere to.

As a CPA firm and a member of the AICPA, we are required to adhere to the standards of SSVS #1. In addition, our valuation services team members are specially credentialed as Accredited in Business Valuation (ABV) by the AICPA and also are recognized as Certified Valuation Analysts (CVAs) by NACVA (National Association of Certified Valuation Analysts).

 

contactFor more information
about this topic,
please contact
:
filler

Thomas J. Taricani, CPA/ABV, CVA
814-234-6919

ttaricani@cpabr.com

 

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