Valuation vs. Valuation Lite
February 27, 2014
For many, realizing that a valuation of their business, business interest, security or intangible asset is needed brings to mind massive documentation and even more massive costs. While valuations play a critical role in this area, there are times where a lighter version of a valuation – a calculation of value – may be sufficient.
Valuations: Hummer or Mini Cooper?
The differences between a valuation and calculation of value can be as stark as the difference between a Hummer and a Mini Cooper. Both have their purpose and are effective for their purpose and in their price range.
The American Institute of Certified Public Accountants (“AICPA”) makes a clear delineation between these two types of engagements. The primary difference is that a valuation results in a conclusion of value while a calculation of value results in a calculated value. Clear as mud?
Maybe this will help. While both methods provide a range and/or single amount of value, the approach to the conclusion and the reporting are different. In a valuation, the conclusion is reached using the approach and method the valuation analyst deems appropriate in the circumstances. This is considered a formal conclusion of value, and because of time and detail required, cost more than a calculation of value. A calculation of value uses the approach the valuation analyst and client have agreed to, with more limited valuation procedures included than in a valuation. This is not considered a formal conclusion of value and, as such, is costs less than a valuation.
For a valuation engagement, the valuation analyst may issue one of the following reports:
For a calculation engagement, the valuation analyst may issue the following:
When Is A Calculation of Value A Good Choice?
A calculation of value – the Mini Cooper – is more appropriate in circumstances where:
These are cost-effective engagements and can be expanded to a full valuation should the need arise farther down the road. For business owners, attorneys, financial advisors and family members, an understanding of the levels of valuation products offered is important to asking for – and receiving – the most effective report for the need.
Time is well spent during the outset of an engagement discussing the purpose of the valuation with the valuation analyst to insure that the appropriate level of service is tailored to your specific needs.
Valuation analysists spend significant time walking clients through their options and ensuring they engage them for the right valuation for their purpose. If you have any questions, please fill out the contact form below or call us at 404-874-6244.
If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.CONTACT AN ADVISOR
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