General and Ethical Standards—Second Quarter 2021

General and Ethical Standards—Professional Competence
Gregory R. Caruso, JD, CPA, CVA
NACVA Ethics Oversight Board Member

A concern, particularly for new CVAs and for all CVAs when expanding practice areas or valuation complexity, is maintaining professional competence. Clearly it is unethical to take on work that you cannot perform properly. So how do you move to the next level of valuation work without violating standards?

The NACVA Professional Standards, 06/01/2017 edition states:

“II. General and Ethical Standards
B. Professional Competence
A member shall only accept engagements the member can reasonably expect to complete with a high degree of professional competence. If a member lacks the knowledge and/or experience to complete such engagements with a high degree of professional competence, the member is not precluded from performing such engagements. In such instance, the member must take steps necessary to gain expertise through additional research and/or consultation with other professionals believed to have knowledge and/or experience prior to completion of such engagements.”

This standard can appear as a barrier for taking many engagements. Certainly, prudence must be exercised when venturing into new areas and increased complexity. But, as suggested in the Standard, there are ethical ways to expand your practice areas. Some suggestions to comply with the Standard are below.

1. NACVA has many resources, particularly Business Valuation Standards Resource Tools, that are available via download to all NACVA members.

• The Business Valuation Development Checklisthas both basic things you should review for every valuation and also more in-depth items that might not apply to every business valuation. For instance, under “Description of Barriers to Entry”, just a few of the write up suggestions are: “describe government subsidies; describe the bargaining power of your suppliers; describe the learning or experience curve”, and more that may well lead to important findings in your new situation.
  
  While most of the items are things we should think about on every engagement, having a clear checklist is very helpful. In addition, for CPA members, there are cites back to the AICPA VS Section 100.
   
• The Comprehensive Business Valuation Reporting Checklist for Valuation Engagementsis a document using a checklist format to provide tips on what to include in a report for different types of issues that present themselves in business valuation. Again, some will appear in almost every business valuation, and some are quite specialized and therefore exactly what you might need when working in an area new to you.
   
• While not the focus of this article, the Resource Tools also include templates for engagement letters and a Litigation Engagement Letter Practice Guide so you can create a specific engagement letter for your litigation situation. The importance of proper engagement letters cannot be stressed enough.
   
• Conferences, seminars, and presentations are also available via on-demand, along with an amazing array of information that is available through NACVA—much of it on detailed topics from qualified presenters. A great feature is that most of it can qualify for continuing education credit.

2. Mentor or buddy system. If you are in a valuation firm with senior appraisers, you have reviewers and experienced people to go to. If you are in a general accounting firm or you are a single shingle, you may not. The NACVA has a Mentor Support Program for new members or those just starting out. In any event, I strongly suggest building a network of trusted peers with more and less experience than you. Attend a conference and follow-up with the people you meet or just reach out. You might be surprised as most members are quite generous.
   
   For years I had an experienced valuator who would send me calculation formulas, data source information, and even report clips as I ventured into new areas. I now try to pay it forward and do this where I have the knowledge. I think most members have similar experiences and attitudes. In addition, we all sometimes need to “just check something we are 97% sure is correct.” Build a network you can rely on for your growth and make sure you help others coming up behind you.

3. Professional journals, websites, books, and more.There are endless sources of information from free sites like Damodaran Online to journals such as Willamette (and of course NACVA’s various journals) to just Googling the topic and reading the articles that come up.

Prudence must be exercised when venturing into new valuation practice areas and challenges. If you have quality control systems in place, such as reviewing the detailed checklists mentioned in this article, peers for question resolution and guidance, and are willing to put the time in to become educated in the new topic, you can expand your practice areas and not violate the NACVA Professional Standards or other standards bodies’ guidance.

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Gregory R. Caruso, JD, CPA, CVA, is the author of The Art of Business Valuation, Accurately Valuing a Small Business (Wiley & Sons; www.artofbv.com) because valuing small businesses is different from larger ones. Greg has valued 100s and 100s and brokered over 60 small businesses. He is a NACVA member on the Ethics Oversight Board and was Editor in Chief of Around the Valuation World, NACVA’s monthly two-hour webinar. Greg remains active in business valuation at www.harvestbusiness.com and is developing peer groups to improve members professional practices for CPAs, accountants, and experts (www.yourprofitablepractice.com). You can reach Greg at gcaruso@artofbv.com or (609) 664-7955.