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Litigation Questions | Non-Litigation Questions

Litigation
Question: Are there situations in a litigation setting where a calculation engagement (calculation report) may not be appropriate in lieu of a valuation?

Answer: Yes. The decision to perform and disclose the results of a calculation engagement via written and/or oral testimony may not be appropriate in certain contested dispute/litigation settings. Some courts may attribute less weight to a calculation of value as compared to a conclusion of value for the same business since the nature of a calculation engagement is more limited in the scope of the procedures to be performed and therefore the value determined may be different had a valuation engagement been performed (NACVA Professional Standards Section V, C.3.g.). Any real or perceived benefits to a member’s client should not be the sole reason for a member choosing to perform a calculation engagement.

Interpretation: A unilateral decision to disclose the results of a calculation engagement in a contested dispute/litigation setting may not be appropriate absent legitimate restrictions preventing both the member and opposing expert from performing a conclusion of value. A member must avoid bias in the development of a calculated value, and the application of a self-imposed scope limitation, even by agreement, may be perceived by the court as bias(ed) if the self-imposed scope limitation is seen as preventing a member from objectively considering an approach or relevant data.
LitigationQ1—Standards Board FAQs as approved by the EAB 08/13/20

Reliability of Data
Question: Per the NACVA Professional Standards, a member may rely upon information provided by any source without corroboration if disclosed in their report. Does this safeguard an expert's testimony or the underlying data for which it is based upon from being ruled unreliable by a trier of fact?

Answer: No. While “a member may rely upon information provided by any source without corroboration if disclosed in the report”, this disclosure does not safeguard an expert's testimony or the underlying data for which it is based upon from being ruled unreliable by a trier or arbiter of fact.

Interpretation: The fact that a member may rely upon information provided by any source without corroboration if disclosed in the report has no bearing upon how a trier or arbiter of fact may rule regarding the reliability of an expert's testimony. A trier or arbiter of fact may rule/find a member's testimony or the underlying data (basis) of said testimony unreliable, less reliable, or lacking foundational reliability whether the member discloses their uncorroborated reliance upon data or not. If the underlying data of a member’s expert opinion is deemed unreliable, the expert opinion or conclusion drawn from said data may, by default, also be ruled, deemed, or found unreliable.
LitigationQ2—Standards Board FAQs as approved by the EAB 09/10/20

Sufficient Relevant Data
Question: In a litigation setting, does a member’s election to perform a calculation provide a safe harbor allowing a member not to take responsibility for the appropriateness of the agreed approaches, methods, and selected procedures or use professional judgment?

Answer: No. No safe harbor exists that would allow a member to ignore professional judgment or disregard approaches and/or methods outside of the agreed approaches, methods, and selected procedures that best indicate the value.

Interpretation: In a litigation setting, the decision to perform a calculation cannot be used as a safe harbor allowing a member to ignore relevant information and professional judgment (Section IV, F). Moreover, a member is required by the standards to: (1) obtain sufficient relevant data to afford a reasonable basis for conclusions, recommendations, or positions (Section II, F); (2) consider scope limitations which affect the level of reliance on the information (Section IV, D); and (3) exercise due professional care in the performance of services, including completing sufficient research and obtaining adequate documentation (Section II, C).
LItigationQ3—Standards Board FAQs as approved by the EAB 10/08/20

Automated Valuation Model
Question: Does the output of an automated valuation model represent a conclusion of value or an opinion of a calculated value that can be proffered in a litigation setting?

Answer: No. The output of an automated valuation model is not, in and of itself, representative of an opinion of a conclusion of value or calculated value suitable for a litigation setting. While the output of an automated valuation model may help support the basis of a member’s opinion, professional judgment must be applied by the member responsible for the determination of value and is necessary to be able to conclude or opine upon a value estimate generated by an automated valuation model.

Interpretation: The use of professional judgment is an essential component of estimating value (Section I). Moreover, the results generated by an automated valuation model are not innately or intrinsically equivalent to a conclusion of value or an opinion of a calculated value. An automated valuation model is a tool used to calculate or perform a mathematical computation.
LitigationQ4—Standards Board FAQs as approved by the EAB 10/08/20

Question: Does the litigation reporting exemption apply when preparing a review report?

Answer: There is no litigation exemption in the Review Engagement Reporting Standards when preparing a review report. When a member provides his or her own conclusion of value or calculated value, the NACVA Business Valuation Standards apply, which includes the litigation reporting exemption.

Interpretation: Although there is not a litigation reporting exemption specific to review engagements, a member can provide an oral report in a litigation setting. The NACVA Review Engagement Development Standards apply.
LitigationQ5—Standards Board FAQs as approved by the EAB 11/12/20

Question: Since there is a reporting exemption for matters done before a court, does this mean that it is not possible to violate NACVA Professional Standards when performing a calculation engagement in a litigation setting?

Answer: No. Both valuation and calculation engagements are always subject to the General and Ethical Standards which require the member to apply professional judgment, obtain sufficient relevant data, exercise due professional care, remain objective, and maintain professional integrity while doing so in a professionally competent manner. “A Calculation Engagement occurs when the client and member agree to specific valuation approaches, methods, and the extent of selected procedures and results in a Calculated Value.” (III, B, 2).

Interpretation: In a litigation or non-litigation setting, the primary difference between a conclusion of value and a calculated value is the scope of work agreed upon by the member and the client. Members are advised to consider the impact a reduction in the scope of work could have on the result and inform their clients and counsel before beginning the engagement. Although the NACVA Professional Standards do not expressly discuss a fundamental analysis for a calculation engagement, the member could still consider a fundamental analysis in order to develop a reliable indicator of value.
LitigationQ6—Standards Board FAQs as approved by the EAB 12/10/20

Question: How are valuation and calculation engagements performed in a litigation setting different from those performed outside of litigation?

Answer: A valuation or calculation engagement performed in a litigation setting can be very different from a similar engagement performed on the same subject business outside of litigation. A member must work with their client and counsel to identify any key differences between a litigation and non-litigation engagement as the requirements of the end users may vary significantly.

Interpretation: The member should work with the relevant parties to identify the purpose, state and/or jurisdiction specific requirements, definitions, and application of appropriate standard/premise of value, developmental procedures, and/or reporting procedures in a litigation engagement. Valuation or calculation engagements in a litigation setting must treat the client and court as one in the same to establish the appropriate procedures, scope, and level of service necessary to achieve the objectives of the client/user with objectivity and integrity.
LitigationQ7—Standards Board FAQs as approved by the EAB 12/10/20

Question: Are there situations in a litigation setting where a calculation of value may be used in lieu of a conclusion of value?

Answer: Yes. A calculation of value may be preferred in lieu of a conclusion of value in a litigation setting for the purpose of settlement facilitation. A conclusion of value may be unavoidably problematic due to uncontrollable limitations or restrictions of data, time, or financial resources that effectively prohibit the performance of some, but not all, necessary valuation procedures. The Court may allow testimony on a calculation of value, which would go to the weight of the evidence not the admission of evidence. Further, the parties may stipulate to the calculation of value and/or the admission as evidence.

Interpretation: In some cases, a calculation of value is preferred due to scope, time, and monetary limitations or based on the type of litigation setting. Additionally, both experts may agree to perform calculation engagements to address those limitations. However, it is important to note that a member may not utilize a calculation engagement for the sole purpose of excluding relevant information or methods that may manipulate the ultimate value.
LitigationQ8—Standards Board FAQs as approved by the EAB 01/14/21

Question: Can a calculation engagement be performed if an opposing expert, party, or attorney restricts access to financial data, information, or inspection in a litigation setting?

Answer: It depends. The member needs to analyze the facts and circumstances of the engagement to determine if the member can develop a calculation of value given any restrictions or limitations.

Interpretation: The member must consider scope limitations which affect the level of reliance on the information and shall serve the client interest by seeking to accomplish the objectives established with the client, while maintaining integrity and objectivity. In litigation, opposing attorneys are free to question expert witnesses about alternative methods or approaches not considered in forming the opinions offered. If the opposing party or attorney restricts access to financial data (tax returns, financial statements, information [interviews, discovery responses], or inspection [site visits, making copies of pertinent documents]) in a litigation setting, the member should advise his/her client and/or attorney to advise the court of the opposing side’s actions.
LitigationQ9—Standards Board FAQs as approved by the EAB 01/14/21

Question: Are standards of value, such as fair market value, treated the same from state to state relative to matrimonial dissolution litigation?

Answer: It depends. A valuation analyst must work with their client and/or attorney to identify the state specific terms, definitions, and application of the standard of value.

Interpretation: Standards of value terms such as “Fair Market Value”, “Fair Value”, “Investment Value”, and “Intrinsic Value” often have nuanced interpretations based upon the jurisdiction and litigatory purpose. This means that two states may use a standard of value term like “Fair Market Value” in a slightly different way despite both states adopting the same standard of value for a particular type of litigatory purpose. An example of this in action would be the state-to-state differences noted in the application of fair market value with regards to whether enterprise and personal goodwill are treated as marital assets or even distinguished at all.
LitigationQ10—Standards Board FAQs as approved by the EAB 02/11/21

Question: Is a calculation engagement an acceptable alternative to a valuation engagement in a litigation setting regardless of jurisdiction?

Answer: Not always. A valuation engagement is generally preferred over a calculation engagement in a litigation setting. Consequently, a calculation engagement is not always an acceptable alternative to a valuation engagement in a litigation setting. There are a number of situations common to litigation where a calculation engagement would not provide the trier of fact with information that assists them in making an ultimate determination in the case. However, there may be circumstances where a calculation engagement is appropriate in a litigation setting, such as when information is limited. Calculation engagements are commonly used for mediation and settlement purposes.

Interpretation: A member must consider scope limitations which affect the level of reliance on the information. In a litigation setting this would also include consideration of any and all relevant statutes and precedent governing how estimates of value may be determined, disclosed, or adduced. For additional explanation regarding the use of calculation engagements, review the other relevant FAQs.
LitigationQ11—Standards Board FAQs as approved by the EAB 03/11/21

Question: May a member perform a business valuation review engagement in a litigation setting?

Answer: Yes. A business valuation review engagement may be performed in a litigation setting so long as such a report or engagement does not conflict with the applicable jurisdictional requirements, statutes, and judicial precedent.

Interpretation: As is the case for all review engagements, a member must adhere to the applicable NACVA Professional Standards (Section VI).
LitigationQ12—Standards Board FAQs as approved by the EAB 03/11/21

Question: Does the litigation reporting exemption apply to engagements that are not in formal litigation, but are contested, in dispute, or in some form of alternative dispute resolution?

Answer: Yes. The litigation reporting exemption applies to engagements where a dispute exists. For this purpose, dispute engagements can include mediation, arbitration, collaborative, or other forms of agreed dispute settlement arrangements.

Interpretation: According to Section V, D of the NACVA Professional Standards, “A valuation performed for a matter before a court, an arbitrator, a mediator, or other facilitator, or a matter in a governmental or administrative proceeding, is exempt from the reporting provisions of these standards. The reporting exemption applies whether the matter proceeds to trial or settles. This litigation waiver does not, however, relieve the member from complying with the Development Standards and all other standards promulgated by NACVA.”
LitigationQ13—Standards Board FAQs as approved by the EAB 03/11/21

Non-Litigation
Question: Can spreadsheets be prepared that are not part of either a calculation report or a conclusion of value report?

Answer: If a member prepares a mathematical computation, it may be considered “Other Services” under Section III, C. However, if valuation approaches and professional judgment are utilized, the member should follow Development Standards (Section IV) and Reporting Standards (Section V) for a Conclusion of Value or a Calculated Value (Section III, B). Other Services should be in compliance with General and Ethical Standards (Section II). Member should provide a disclaimer when appropriate in the judgment of member.

Interpretation: Scope of Services can be found in Section III of the NACVA Professional Standards. “Members shall comply with these Development and Reporting Standards” when performing valuation services as either a Conclusion of Value or a Calculated Value (Section III, B). Services that do not utilize the member’s professional judgment are classified as Other Services (Section III, C).
Non-LitigationQ1—Standards Board FAQs as approved by the EAB 08/13/20

Jurisdictional Exception
Question: Is a NACVA member required to follow USPAP?

Answer: Generally, members are not required to follow USPAP to be in compliance with NACVA Professional Standards. However, there may be instances that require USPAP to be followed as well as the NACVA Professional Standards.

Interpretation: A member of the NACVA is required to follow NACVA Professional Standards. Members should be aware of any governmental regulations and other professional standards applicable to the engagement, and the extent to which they apply. In these situations, members should follow the NACVA Professional Standards and the applicable governmental regulations and other professional standards applicable to the engagement. Members are also encouraged to review the Standards Comparison Charts here: https://www.nacva.com/standards. (Additional references SSVS1; SBA:ii,C,1,a; CEIV Mandatory Performance Framework.)
Non-LitigationQ2—Standards Board FAQs as approved by the EAB 09/10/20

Non-Standard Methods
Question: Is it acceptable for a member to utilize valuation approaches and/or methods that have not been peer-reviewed?

Answer: If a valuation approach and/or method is utilized by a member that has not been peer-reviewed, it should be presented in a way that a reviewer can replicate the approach and/or method. However, even if the method can be replicated, it is not guaranteed to be an acceptable method. And, as always, all professional standards must be followed.

Interpretation: NACVA Professional Standards do not mandate the use of specific approaches and/or methods. Approaches and methods are discussed in Section IV, F: “Valuation methods are commonly categorized into the asset-based, market, income, or a combination of these approaches. Professional judgment is used to select the approaches and the methods that best indicate the value. Rules of thumb are acceptable as reasonableness checks but should not be used as a stand-alone method.” If a member uses an approach and/or method that has not been peer-reviewed, it is expected that a reviewer should be able to replicate the approach and/or method. The member may fail a Daubert challenge for failure to rely on general accepted valuation principles and methodologies peer reviewed.
Non-LitigationQ3—Standards Board FAQs as approved by the EAB 10/08/20

Form of Report
Question: Can a letter (or written communication) and underlying schedules be attached to an oral report?

Answer: Assuming the requirements for an oral report were met, a letter (or written communication) and supplemental schedules can be provided.

Interpretation: A letter or written communication may be provided to supplement an oral report. The NACVA Professional Standards do not govern the subject matter of a letter. Detailed, Summary, and Calculation reports are discussed in Section V, C. If a member includes a letter to accompany the oral report, the member should indicate in the letter or memorandum the restrictions on the use of the letter (which may include restrictions on the users and uses of the letter or written communication). It is suggested that a member state in the letter (or written communication) that an oral report was provided and that the oral report requirements have been met.
Non-LitigationQ4—Standards Board FAQs as approved by the EAB 10/08/20

Question: Is the disclosure of a site visit required for a detailed, summary, or calculation report?

Answer: A member is not required to conduct a site visit or disclose the site visit for a detailed, summary, or calculation report. Per (Section V, C, 1, e, 9), the fundamental analysis may include a site visit disclosure for a conclusion of value.

Interpretation: The decision on whether to conduct a site visit and the disclosure is up to the discretion of the member. A member should consider documenting whether a site visit was conducted for their file. If a site visit impacts a conclusion of value, the member should disclose it in either the detailed or summary report. It is also suggested that it be disclosed in a calculation report if the site visit impacted the calculated value. However, it is always recommended that a site visit be disclosed if performed.
Non-LitigationQ5—Standards Board FAQs as approved by the EAB 11/12/20

Question: I have small clients requesting lower cost services. When can I use consultation engagements to serve them?

Answer: If a member prepares a mathematical computation, it may be considered “Other Services” under Section III, C. However, if valuation approaches and professional judgment are utilized, the member should follow Development Standards (Section IV) and Reporting Standards (Section V) for a Conclusion of Value or a Calculated Value (Section III, B). Other Services should be in compliance with General and Ethical Standards (Section II).

Interpretation: Scope of Services can be found in Section III of the NACVA Professional Standards. “Members shall comply with these Development and Reporting Standards” when performing valuation services as either a Conclusion of Value or a Calculated Value (Section III, B). Services that do not utilize the member’s professional judgment are classified as Other Services (Section III, C) such as mathematical computations.
Non-LitigationQ6—Standards Board FAQs as approved by the EAB 12/10/20

Question: In a review engagement, should a member opine as to scope of work as defined in the report under review?

Answer: Consistent with the scope of work as defined in the report under review, the member is required to develop an opinion as to the completeness, accuracy, adequacy, relevance, and reasonableness of the report, given law, regulations, or intended user requirements applicable to that scope of work.

Interpretation: Although it is not part of a review engagement to opine as to the appropriateness of the scope of work, a member should determine if the report is reliable in accordance with review standards.
Non-LitigationQ7—Standards Board FAQs as approved by the EAB 11/12/20

Question: What is the remedy if the member disagrees with a scope of work as defined in a review engagement?

Answer: A member should discuss the scope of his or her engagement with the client when the member has an issue with the scope of work in the report under review. In this instance, the member may be required to issue his or her own separate valuation or calculation report. When the scope of work requires the member to develop his or her own conclusion of value or calculated value based upon a modified scope of work, the member must comply with the NACVA Professional Standards applicable to the development of such estimate of value.

Interpretation: If the scope of work is the sole issue, the member should prepare his or her own separate conclusion of value or calculated value based upon the scope of work he or she believes to be appropriate.
Non-LitigationQ8—Standards Board FAQs as approved by the EAB 11/12/20

Question: When should a member issue a summary versus a detailed valuation report?

Answer: The form of the report “…should be appropriate for the engagement, its purpose, its findings, and the needs of the decision makers who receive and rely upon it” (Section V, B). The member decides which report type to issue with the concurrence of the client.

Interpretation: The member should disclose the report type in the written or oral report. Members should refer to (Section V, C, 1) for sections that should be included (as applicable) in a Detailed Report, while Summary Reports allow the member to present an abridged version of the Detailed Report. A member should discuss with the client which type of report may be most appropriate for the given assignment before beginning the valuation engagement.
Non-LitigationQ9—Standards Board FAQs as approved by the EAB 11/12/20

Question: My colleague is accredited as an ABV through the AICPA and performs business valuations in accordance with the Statements on Standards for Valuation Services (also known as VS Section 100) of the AICPA. I am a CVA accredited through NACVA. Can I sign reports for entities for whom we have previously prepared valuations in accordance with other valuation standards, or do I have to change the reporting to be in compliance with NACVA?

Answer: Any reports issued and signed by a CVA should be in compliance with NACVA Professional Standards. (Section I, A): “Members of the National Association of Certified Valuators and Analysts (NACVA) shall comply with the standards and definitions herein.”

Interpretation: A member of NACVA is required to comply with NACVA Professional Standards when issuing and signing reports. Members who are also members of other professional organizations should comply with the respective standards of those organizations. Members are encouraged to review the Standards Comparison Charts here: https://www.nacva.com/standards. It may be reasonable for a report to follow the standards of multiple organizations if a firm employs members of more than one certifying organization.
Non-LitigationQ10—Standards Board FAQs as approved by the EAB 12/10/20

Question: If asked to review a conclusion of value or calculated value and a member proposes changes, is the member performing their own conclusion of value or calculated value if the changes result in a different number?

Answer: Yes. Members should refer to the Business Valuation Review (Section VI) of the NACVA Professional Standards. “…If the member provides a conclusion of value or calculated value as a part of the review of another valuation analyst’s work, the member must follow NACVA’s General Business Valuation Standards…” However, “If the member does not provide a conclusion of value or calculated value as part of the business valuation review, the member need only provide an opinion, including the basis and reason for the opinion, as to whether the report under review is appropriate and not misleading within the context of the requirements applicable to that work…” Specifically, members should consider Review Engagement Report Standards (Section VIII, a, III) for additional detail.

Interpretation: The business valuation review is a type of service, whether written or oral, intended to provide users an opinion regarding the credibility of the work product of another valuation analyst. The member must “Develop an opinion as to whether the report is appropriate and not misleading within the context of the requirements applicable to that work; and develop the reasons for any disagreement.” Members should refer to Business Valuation Review (Section VI), Review Engagement Development Standards (Section VII), and Review Engagement Reporting Standards (Section VIII) when performing review engagements. Specifically, members should consider Review Engagement Report Standards (Section VIII, a, III) for additional detail.
Non-LitigationQ11—Standards Board FAQs as approved by the EAB 01/14/21

Disclaimer: It is important to note that these questions were prepared by members of the NACVA Standards Board, reviewed and approved by members of the Executive Advisory Board. Although the information contained in the questions has been carefully reviewed and compiled from sources believed to be reliable, the accuracy of the information is not guaranteed. It is neither intended nor should it be construed as legal, accounting, and/or tax advice, nor as an opinion provided by NACVA, or the board members.

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