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Value of Professional Standards and Ethical Behavior—Second Quarter 2019

NACVA Association News

Steven McDonald

The Value of Professional Standards and Ethical Behavior: My Opinion

By Steven McDonald, CVA
Chief Economist
Community Solutions Group
In June, I recently completed a three-year term with the NACVA’s Ethics Oversight Board (EOB), which included serving as Chairman this past year. This June will also mark four and one-half years as a CVA with the NACVA, but also nearly three decades of providing economic and financial consulting to both public and private clients. I am very grateful for having the opportunity to serve on the EOB because of the insight it has provided on the value of Professional Standards.

I imagine that when most individuals hear the word “ethics” or “ethical”, they think of moral issues like stealing, cheating, or lying. But ethics in business is also about consistent policies and practices that professional individuals can choose to follow to more likely create public approval and acceptance. As a member of the NACVA, we make a commitment to comply with NACVA’s Professional Standards, which are more than committing to professional integrity and objectivity. The guidance provided in these principles-based Standards is critical for using professional judgement when performing valuation services.

My consulting career, prior to becoming a member of NACVA and a CVA, included many assignments that would be considered “valuation services”—determining the value of a stream of income is not a new concept. In fact, historical research suggests that discounted cash flow (DCF) calculations have been used in some form as early as the first time money was provided as a loan with interest; possibly ancient Egypt. While an industry comprised of professionals, organizations, and supporting agencies for valuing business enterprises (as opposed to real property) has grown significantly over the past decade, not all assignments have some form of legal or regulatory requirement for valuation services. For example, most public entities can buy or sell income producing assets, such as utility systems, without a certified business enterprise valuation.

So why become a CVA if I can still assist clients with my opinion of a businesses’ value solely based on my expertise and experience in economics and finance? Frankly, consistently producing valuation services that comply with the NACVA Professional Standards has significantly improved the value of my services. I believe the quality of the economic and financial analysis is the same, but the approaches to using professional judgement that comply with the NACVA Professional Standards has made me a better appraiser. Every assignment is unique and when considering every facet of value, not all assumptions or decisions impacting a conclusion of value can be different from assignment to assignment—while still maintaining objective, professional integrity.

Valuation and appraisal development is based on building cumulative knowledge and the development of Professional Standards that promote a high level of consistency among many disparate assignments and authors. As more and more valuation and appraisal work conforms to development standards and as more and more knowledge is disseminated to a wider audience, the use of Professional Standards creates wider public approval and acceptance and confidence in your services as a CVA and member of the NACVA.