How to develop and support a credible opinion of value based on a foundational framework This book provides knowledge and guidance to valuation practitioners on achieving a new level of professionalism and credibility, as well as to those stakeholders in the valuation process in need of assessing the credibility of an appraiser's work product for decision-making purposes. It introduces a well defined framework of key credibility concepts and procedures at each step of the appraisal process, including reasonableness tests, valuation methodologies, financial analysis, economic and industry analysis, engagement planning, and informed judgment.
- Provides needed guidance to valuation practitioners to enhance their valuation practice and improve the credibility of the appraiser's work product
- Offers guidance to stakeholders in the valuation process in need of assessing the credibility of an appraiser's work product for decision-making purposes
Get foundational framework appraisal advice with the proven guidance found in Determination of Value.
Table of Contents:
Preface xi
Acknowledgments xiii
Chapter 1: The Problem 1
In Search of a Truth 1
The Assurance Expert 4
Credibility Is Not Synonymous with Truth 7
Where Do We Go from Here? 8
Chapter 2: The Solution 9
Toward a Defi nition of Credibility 9
The Attributes That Make You Credible 10
Operational Credibility Attributes 11
Personal Credibility Attributes 19
General Observations about “Credibility” 21
Credibility Is Not Synonymous with Truth 23
Don’t Confuse Opining with Decision Making 25
Beware of Black Box Opinions 26
Conclusion 26
Chapter 3: The Credibility Pyramid and the Importance of a Well-Defined Analytical Process 29
The Importance of Process 29
The Valuation Process 31
The Credibility Pyramid 34
Three Problem-Solving Phases 36
Conclusion 41
Chapter 4: Pyramids, Not Castles 43
Why Is Credibility Important? 44
Reasonable Assurance 47
Generally Accepted Practices 50
Generally Accepted Practices Lead to Uniformity and Professional Consensus 54
Analytical Gaps 55
Informed Judgment 56
Conclusion 59
Chapter 5: Climbing the Credibility Pyramid 61
The Importance of Revenue Ruling 59–60 61
Identification of Key Pre-Engagement Parameters 63
Planning to Acquire Knowledge about the Subject 65
General Planning Considerations 69
The Importance of the Standard of Value as You Climb the Pyramid 79
Self-Assessment Tools 83
Stepped Reading 87
Conclusion 88
Chapter 6: How to Develop and Report Your Opinion 91
Practice Presenting Your Written Findings Orally 91
Valuation Adjustments 102
Description of a Benchmarking Methodology Used by Valuation Analysts 106
Benchmarking: Relative Weights and Qualitative Analysis 111
Make Sure There Are No Analytical Gaps in the Development and Derivation of Growth Rates 115
Incorporating Prospective Information That Is Presented into Your Opined Results 119
Reporting Your Opined Results 126
Conclusion 129
Chapter 7: Reasonableness Tests 131
Determining Reasonableness 132
Example 1: Derived Estimate of Value 136
Example 2: Guideline Company Method 139
Example 3: Use of Market Multiples 144
Example 4: Federal Tax Compliance 145
Conclusion 146
Chapter 8: Enhancing the Integrity of Your Opinion 149
Understanding the Credibility Threshold 150
Understanding the Scope Undertaken 152
Understanding Analytical Responsibilities and the Impact of Matter/Cause/Effect Analysis 154
Conduct Your Analysis within the Parameters of the Economic Reality Relevant to the Facts and Circumstances 156
Maintain a High Level of Professional Skepticism and Engagement Awareness 157
Review Your Analytical Process for Relevance and Typical Common Errors 160
Be Ready to Respond to Ethical Challenges 162
Enhancing the Integrity of Your Opinion When at Trial or in Hearings 163
Enhancing the Integrity of Your Opinion When at Deposition 166
Conclusion 166
Chapter 9: Reviewing the Work of Others 169
Review Engagement Procedures to Consider 170
Preparing a Document Request for a Review Engagement 172
The Role to Be Assumed: Reviewing Expert or Reviewing Consultant 173
Limiting Conditions and Assumptions 174
Determining an Appropriate Scope for Your Review 175
Minimum Scope Considerations in a Review Engagement 177
Conclusion of a Business Appraisal Review Engagement 177
Business Appraisal Review Opinion 178
Reviewer’s Independence 182
Common Errors and Analytical Gaps Found in Valuation Reports 183
Conclusion 188
Chapter 10: The Journey Continues 189
Definition of Credibility 189
Attributes Attached to a Credible Opinion 190
Separating Decision Making from Opining 192
A Note on Generally Accepted Principles and Practices 193
A Definition of the Concept of Informed Judgment 193
Suggestions for Assessing Your Own Methodology—the Importance of Reasonableness Tests 194
Suggestions for Enhancing the Integrity of Your Opinion 194
Conclusion 195
Appendix 197
About the Author 209
Index 211
About the Author :
Francisco "Frank" ROSILLO, CPA, ABV, ABAR, CBA, CVA, CFE, CFF, CFFA, is the managing director of the Valuations and Forensics Advisory, LLC. Serving an international clientele, the firm provides business valuations, mergers and acquisitions transactions, and forensic accounting advisory services. Rosillo is a frequent national lecturer and trainer in valuation and forensic accounting topics. He has authored Institute of Business Appraisers (IBA) and National Association of Certified Valuators and Analysts (NACVA) courses and the practice aid, Business Appraisal Review. Frank also teaches a five-day NACVA Appraisal Review Workshop and is a member of the Board of Governors of the Institute of Business Appraisers. He has been the recipient of several CPA accounting professional awards in business valuations and litigation support. His financial expert witness experience includes cases in federal and state courts.
