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"WHAT IS YOUR BUSINESS WORTH? THE ANSWER DEPENDS ON THE METHOD OF VALUATION AND THE PURPOSE OF THE VALUATION. NOT ALL VALUE IS THE SAME."

Business Appraisal Review

What differentiates business appraisal review from business valuation is both the process and the result of each assignment.

An appraisal involves the gathering and analysis of information, the application of valuation methodologies, and informed judgment to reach a valuation opinion. (For a discussion of the valuation process click here.) Business appraisal review involves a review of the report and other relevant data to reach an opinion as to whether the report is credible. In other words, the review examines whether the analysis and information provided in the report is sufficient to reach the stated opinion of value. An appraisal review is not an opinion about the value, but an opinion about the process the appraiser used to reach the opinion.

The cornerstones to the review process in determining credibility involve the evaluation of the following processes applied to reach the opinion of value:

  • Relevance – the analytical nexus between the data, methodologies and analysis performed by the appraiser to his or her conclusions
  • Reliability – the sufficiency of the methods used to replicate the original results
  • General acceptability of chosen methodologies – the methodologies selected by the appraiser should meet the minimum requirements of peer review, including publication, and be accepted and used by other appraisers in engagements with similar facts and circumstances
  • Transparency – the inclusion in the appraisal of sufficient information and analysis known to the appraiser to reach his or her conclusion
  • Adequate disclosures – the appraisal must not only present known facts and circumstances to achieve transparency, but also include disclosures to support the foundation of the appraiser’s conclusions
  • Completeness – the report must contain the elements necessary for an informed reader to replicate the opinion of value

Without satisfying these criteria, a report may have analytical gaps and lack foundation, thus it may not be reliable.

When is an appraisal review appropriate?

  • Rebuttal of expert report in litigation
  • Trustee or fiduciary due diligence regarding valuation reports
  • Small appraisal firms that do not have review capabilities in-house
  • Tool for identifying weakness in reports for settlement purposes

The advantage of using a business appraisal review is that it takes significantly less time to complete and is cost effective when compared to a full appraisal.

National Association of Cartified Valuators and Analysts grants the ABAR (Accredited in Business Appraisal Review) designation to appraisers who hold a business appraisal accreditation, have at least 5 years of full-time appraisal experience, complete educational requirements, and demonstrate proficiency in appraisal review by passing an exam and submitting a review report for peer review.

If you have questions about business appraisal review, please call Yip Associates at 561-325-6959 or email mbour@yipcpa.com for more information.