The statement applies to any engagement to estimate value when the valuation analyst (1) “applies valuation approaches and valuation methods” and (2) “uses professional judgment.” According to the statement, “the use of professional judgment is an essential component of estimating value.” Even with this guidance with regard to SSVS1 implementation, some members may be concerned as to when they should apply the statement. Since the statement is new, some members may be uncertain as to what professional services are encompassed by SSVS1. Therefore, this discussion will provide some examples of common client engagement situations to which the statement does—and does not—apply.
Members should carefully consider when the statement applies to a client engagement. Unless a particular engagement is specifically excluded by the statement, SSVS1 applies to any engagement to estimate value. In determining the scope and requirements of the engagement, a member should consider (1) the needs of the valuation client and (2) the requirements of any third party for whom the valuation is intended. Such third parties may include governmental and regulatory agencies, judicial finders of fact, and accounting or legal professionals. Of course, a member should also consider all other AICPA professional standards that may apply to the valuation engagement.
The following several pages include 50 examples of general fact patterns related to various client services and indicate whether the statement applies under those circumstances.
| Item |
50 Examples |
SSVS1 Applies |
1 |
Preparation of a business valuation for gift or
estate tax purposes where the member applies
the provisions of Revenue Ruling 68-609 and no
other procedures |
Yes |
2 |
Valuation of a business goodwill for income tax
purposes only where the member applies the
provisions of Revenue Ruling 68-609 and no
other procedures |
Yes |
3 |
Valuation of a family-owned business included
in a marital estate, for family law purposes |
Yes |
4 |
Engagements to estimate value for litigation
support or expert testimony purposes |
Yes |
5 |
Lost profits economic damages computations for
litigation support purposes |
No |
6 |
Economic damages computations that
incorporate a terminal value |
No |
7 |
Economic damages calculations related to the
lost value of a business or intangible asset for
litigation support purposes |
Yes |
8 |
Mechanical calculations of value (for example,
using actuarial tables), where valuation
approaches and methods are not used and
professional judgment is not required |
No |
9 |
Valuing a relatively small block of publicly
traded stock (relative to the total amount of the
corporation stock outstanding) when the
per-share price is readily ascertainable |
No |
10 |
Preparing a tax return using a valuation of a
business that was provided by a third-party
appraiser or by the client |
No |
11 |
Calculating the cash “hold back” requirements
for tax contingencies |
No |
12 |
Valuing for any purpose (including gift or estate
tax return preparation) a block of publicly
traded stock if the analysis includes consideration
of a discount for blockage, lock-up, or other
contractual or marketability/transferability
restrictions |
Yes |
13 |
Valuing stock that is not publicly traded |
Yes |
14 |
Computing the fair market value of assets in a
charitable remainder trust (CRT) if the analysis
requires the application of valuation approaches
and methods and the use of professional
judgment |
Yes |
15 |
Valuing non-publicly traded limited partnership
interests |
Yes |
16 |
Providing advice for planning purposes (such as
estate planning, personal financial planning, or
merger and acquisition planning) without reference
to value |
No |
17 |
Providing advice for planning purposes (such as
estate planning, personal financial planning, or
merger and acquisition planning) where the
member calculates a value |
Yes |
18 |
Determining the income tax deductibility of
interest under a non-recourse loan |
No |
19 |
Compliance filings that require an estimate of
the value of a company and the analysis requires
the application of valuation approaches and
valuation methods and the use of professional
judgment |
Yes |
20 |
Compliance filings that require an estimate of
the value of a company and the client or a third-party
appraiser provides the value of the subject
interest |
No |
21 |
Compliance filings that require an estimate of
the value of a company and the state (or other
government agency) follows a formula rule
where the application of valuation approaches or
methods is not necessary |
No |
22 |
Purchase price allocations where the purchase
price is allocated to the subject interest (that is, a
business, business ownership interest, security, or
intangible asset) and the client or a third party
did not provide the member with the asset values |
Yes |
23 |
Purchase price allocations where (after the
allocation of the purchase price to cash,
receivables, inventory, and tangible assets), the
residual amount is allocated to goodwill or going
concern value |
No |
24 |
Purchase price allocations where the member
allocates a residual amount to specific intangible
assets (such as to various customer-based or
supplier-based intangibles) and that allocation is
based on the asset’s relative value |
Yes |
25 |
Computing the fair market value of an interest
in a family limited partnership (FLP) for gift or
estate tax purposes, without applying any
valuation discounts |
Yes |
26 |
Computing the fair market value of assets in, or
computing the required distribution of, a
charitable remainder trust (CRT) where the CRT
holds assets, such as an interest in a limited
liability corporation (LLC) |
Yes |
27 |
Computing the fair market value of assets in,
or computing the required distribution of, a
charitable remainder trust (CRT) where the CRT
only holds publicly traded stock with a readily
ascertainable value |
No |
28 |
Asset value assignments under IRC § 704(c)
where (1) one or more of the assets is a business,
business ownership interest, security, or
intangible asset and (2) the client or a third party
does not provide the valuation |
Yes |
29 |
Cost segregation study to allocate the costs of
building a structure between the real property and
personal property components of the structure |
No |
30 |
Planning for income from discharge of indebtedness
under IRC § 108 where (1) the company
must rely on the insolvency provisions of IRC §
108, (2) one or more of the assets for which value
is relevant under IRC § 108 is a subject interest
(that is, a business, business ownership interest,
security, or intangible asset), and (3) the company
or a third party does not provide the valuation |
Yes |
31 |
Valuing a partnership interest where the client
and the member agree that the member will
apply an “average” valuation discount that the
member will determine based on the results of
published discount for lack of marketability
studies and published case law |
Yes |
32 |
Informal conversations or written communications
with a client regarding the alternative tax
consequences of gifting versus selling a business
using a presumption of a specific value of the
business |
No |
33 |
An IRC § 482 transfer pricing study that
involves the use of specific methodologies, data,
terminology and documentation requirements
that are provided in the IRS regulations and
procedures (where methodologies and
documentation requirements differ from those
contained in SSVS1) |
No |
34 |
Settlements or negotiations of value in
offers-in-compromise or tax disputes |
No |
35 |
Determining the value of accounts receivable |
No |
36 |
Determinations of value by a member employed
in industry, government, or education who
“moonlights” as a valuation expert witness |
Yes |
37 |
Assignments from an employer to an employee
member not in public practice to prepare a valuation
for internal financial reporting purposes |
No |
38 |
Personal financial planning services that include
estimating the proceeds from a hypothetical
future sale of the client’s business interest |
No |
39 |
Personal financial planning services that include
estimating the proceeds from a hypothetical
future sale of the client’s business interest |
No |
40 |
Personal financial planning services that include
(1) estimating the proceeds from a hypothetical
future sale of the client’s business interest and (2)
the client or another party provides the current
value |
No |
41 |
Personal financial planning services that include
estimating the proceeds from a hypothetical future
sale of a client’s business interest, including
a general discussion with the client of valuation concepts or industry pricing multiples based on
the member’s industry knowledge, where the
discussion assists the client in determining a
hypothetical or assumed value |
No |
42 |
Preparing a personal financial plan that includes
an estimate of the future proceeds from a sale of
the business interest at retirement, where the
member estimates the future proceeds based on
a current business value estimated by applying a
rule of thumb multiple for the subject industry—
but the member does not consider the risk
factors of the subject interest or exercise other
professional judgment in applying the rule of
thumb multiple |
No |
43 |
Valuation of a not-for-profit business to be
purchased by a for-profit client, for private
inurement purposes |
Yes |
44 |
Estimation of the fair value of a debtor’s assets
to determine solvency or insolvency in a
bankruptcy matter |
Yes |
45 |
Valuation of purchased goodwill for FASB 142
intangible asset impairment testing |
Yes |
46 |
Valuation of purchased franchise agreements for
FASB 144 long-lived asset impairment testing |
Yes |
47 |
Estimation of a trademark or patent fair,
arm’s-length royalty rate for intellectual
property infringement purposes |
No |
48 |
Valuation of a going concern business unit for
state or local ad valorem property tax appeal
purposes |
Yes |
49 |
Valuation of a shareholder’s stock purchase
price based on the buy/sell provisions of a
shareholders’ agreement |
No |
50 |
Valuation of a law firm partner’s capital account,
based on application of the partnership agreement
buy-in/buy-out formula, for family law purposes |
No |
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SVS1 applies to any AICPA member who performs “an engagement to estimate value.” According to the statement, any member who performs such an engagement is called a valuation analyst.