Do Ethics Rules Apply to Biased Appraisers?—Fourth Quarter 2024

Do Ethics Rules Apply to Biased Appraisers?

Alan Zipp, CPA, ABV, CVA, CBA, CFE, JD
NACVA Ethics Oversight Board Member

If you have integrity, nothing else matters.
If you don’t have integrity, nothing else matters.

The National Association of Certified Valuators and Analysts (NACVA) Professional Standards are principle-based and provide general and ethical standards in the performance of professional services. The Professional Standards provide that a member/credentialed designee shall remain objective, maintain professional integrity, shall not knowingly misrepresent facts, or subrogate judgment to others. The NACVA ethics rules are incorporated in its Professional Standards and it does not have a separate code of professional ethics. But the issue here is whether the NACVA ethics rules apply to a biased appraiser.

The Uniform Standards of Professional Appraisal Practice (USPAP) has a separate ethics section. In that section, the USPAP Ethics Rule states: An appraiser must not perform an assignment with bias; and an appraiser must not advocate the cause or interest of any party or issue. NACVA Professional Standards do not contain a similar rule. Of course, USPAP standards only apply when an individual is performing the service as an appraiser. NACVA standards apply whenever a member/credentialed designee is providing professional services.

The American Institute of Certified Public Accountants (AICPA) has a separate Code of Professional Conduct applicable to all members in the performance of their professional responsibilities. The AICPA Code of Professional Conduct applies to all services performed in business valuation and litigation support, as well as all services performed for a client, an employer, or on a volunteer basis. Independence in fact and appearance is required only when providing auditing and other attest services. However, even if not independent, AICPA members have the responsibility to maintain objectivity in rendering professional services. The AICPA standards provide that the CPA serves the interests of the client by seeking to accomplish the objectives established by the understanding with the client while maintaining integrity and objectivity. Under the AICPA standards, in the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.

In litigation, an expert witness is often exposed for their bias and lack of independence in an effort to challenge the credibility of the testimony. However, even a biased witness can often be helpful to the court in understanding the facts and issues of a case. A personal or business relationship with a party can result in a bias in favor of the party, but that does not justify false or misleading testimony. Bias describes the relationship between a party and a witness which might lead the witness to slant, unconsciously or otherwise, the testimony in favor of or against a party. But, under the Professional Standards, a NACVA member/credentialed designee must perform professional services with integrity and shall not knowingly misrepresent facts or subrogate judgment to others or act in a manner that is misleading or fraudulent. Under the NACVA Professional Standards, a member/credentialed designee shall serve the client interest by seeking to accomplish the objectives established with the client, while maintaining integrity and objectivity.

Where a NACVA member/credentialed designee represents the seller of a business, for example, and offers calculations of value to a potential buyer, the member/credentialed designee may be biased in favor of the client. But the ethical standards requiring integrity and objectivity continue to apply. The NACVA Professional Standards requiring integrity and objectivity apply to members/credentialed designees in the performance of all professional services.

Integrity is an element of character fundamental to professional recognition. Ethical standards are essential to ensure fairness, transparency, and integrity in the valuation process and the provision of professional services. Deception or misrepresentation is never justified by a NACVA member/credentialed designee even where the member/credentialed designee is employed for the purpose of promoting the client’s cause or where the member/credentialed designee has a financial interest in the client. In all cases, the member/credentialed designee should maintain objectivity and integrity in providing professional services even where the member/credentialed designee has a personal or business relationship with the client.

NACVA has an important interest in promoting and preserving the public trust by maintaining the highest standards of professional ethics required of its members/credentialed designees. NACVA members/credentialed designees have a public responsibility of professionalism where all professional services are provided with the highest sense of integrity. People rely on NACVA members/credentialed designees to be objective and act with integrity even where they are not independent of the client’s cause or interest. Objectivity is a state of mind. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Integrity can be maintained even where the member/credentialed designee has a bias in favor of the client, but it cannot accommodate deceit or subordination of principle.

In answer to the question: yes; ethics rules apply to biased appraisers.