To define a valuation engagement, we need to establish its parameters:
1. The valuation date
2. The entity to be valued
3. The interest to be valued
4. The standard of value
5. The level of value (e.g. non-marketable minority)
6. The premise of value (e.g. going concern)
7. The user of the report (e.g. client and advisors)
8. The use of the report (e.g. gift taxation)
9. The critical assumptions (e.g. whether a new contract will be obtained)
Most of the time, there is only one answer for each parameter. For example, we are appraising the December 31, 2009 non-marketable minority fair market value of a 5% common equity interest in Family Business, Inc., a going concern, for tax purposes so that Mr. and Mrs. Owner can make gifts to their children with the help of their attorney. We are relying on the integrity of compiled financial statements.
What happens if there are multiple answers for any of the parameters? I am only going to address this individually for each of the nine parameters; if more than one have multiple answers, I would never finish this post?
If multiple valuation dates are needed, I usually recommend that a separate report be issued as of each valuation date. Moreover, I take great pains to do the earliest dated report first, and to identify whether any subsequent events were known or reasonably knowable as of the (earlier) valuation date. I state in my report that either there were none, or how I considered the subsequent events. The later report(s) will consider these as having happened (if they did so before the later valuation date(s), and reconsider whether they were known or reasonably knowable if they did not. This comes up a lot in matrimonial valuations where the valuation date is often impossible to establish.
If there are multiple entities, I ask the client and their advisors what they would prefer. If the entities are affiliated (under common ownership or related in some way), I usually suggest one report covering all of them so that the interrelationships, and the fact that I handled them consistently for all entities, are clearly explained.
If there are multiple interests to be valued, I also suggest one report, but make it very clear as to the differences between them (usually in the level of value, if applicable).
If there are different standards of value, I usually recommend separate reports except in the case where a client asks for a “constellation of values” to help them decide whether to gift partial interests (fair market value) or sell the whole company (strategic or investment value).
If there are different levels of value, I suggest just one report that highlights the differences in the applicable premiums and discounts. This comes up often with multi-owner businesses with no buy-sell agreements, which raises the issue of whether discounts for lack of control and / or marketability will apply.
If there are different premises of value, I suggest just one report that highlights the differences. Sometimes I will weight them to come up with a single value, sometimes not. This one is highly dependent on individual case facts and circumstances.
Multiple user (counting the client and his / her advisors as one user) situations come up when we are, for example, jointly retained by disputing parties. I issue one report to all parties.
When there are multiple uses of the report (e.g. gift taxation and buyout of an owner) and everything else has one answer, I will suggest one report, but am equally happy to issue one for each use (because it takes about ten minutes to make the necessary edits to generate the second report from the first).
Finally, if there are multiple critical assumptions (e.g. the contract is secured or it is not) I will issue one report and cover both circumstances, possibly giving them some sort of probability weight to arrive at a final, single value conclusion.
Finally, when in doubt, ask the client and their advisors what they would prefer!