The Key Issue(S) In the Case
The article by Kleeman (2017) focuses on the need to update the guiding principles that form the valuation report. The article discusses about five issues of guiding principles: precision, practicality, plausibility, proficiency, and price. Precision involves the quality or state to become exact or precise. Anyone who looks at a business valuation report must focus on the conclusion or opinion of value. He argues that the more precise the level of conclusion, the more concerned one needs to become concerning the validity of an entire appraisal. Valuers need to make subjective decisions concerning conclusion items.
The issue of practicality refers to the quality to become useful but not speculation. Valuation reports should have a capability to guide readers. Valuers must avoid filling valuation reports with industry jargons and technical terms that cannot be understood and determined (Dupke, Alerding and Hitchner, 2008). A written report assists readers understand everything that an expert communicates. Consequently, a reader must be in a position to believe the appraiser. The article supports what Hood and Lee (2011) say the interest measure of any economic capital ought to represent an expected future income. Valuers who rely on projected benefits must depend on crucial past information.
The issue of plausibility focuses on aspects of acceptability, credibility, validity, and likelihood. Kleeman (2017) argues that any appraisal report must show all assumptions made by a valuer. According to Trugman (2016), this should form part of the natural stage during appraisal process. Risius (2007) illustrates that a plausible report must explain the impacts caused by external environmental variables to support changes in economic outcomes. Some of the assumptions could include the data, the source of data, the economy, and support to overall discussions.
The issue of proficiency explains about the advanced level of competence. Kleeman (2017) reiterates that appraisers of evaluation reports must demonstrate high degree of proficiency. Any valuers must use adequate information to provide the reader with an opportunity to understand the background as well as the qualifications of the appraiser. They should do this irrespective of the years of practice. Kleeman argues that it is not possible for one to succeed in offering part-time practice. Laro and Pratt (2005) contend that both the report and any underlying papers need to show the competency of appraiser to engage in the appraisal practice.
The last issue focuses on pricing. Kleeman (2017) refers to the issue as the amount of price that is expected, given, or required to do something. He suggests that price alone cannot determine the quality of a report. In specific, Kleenman is of the view that any use of the report must a better understanding of report and the requirements to execute valuation engagement. This relates to what Hitchner (2017) says that the cost of an entire report might bring out issues to address. Kleeman notes that he has had a chance of talking to many professionals for several years. Out of the talks, some of the things that have remained constant include the typical Uniform Standards of Profession Appraisal Practice (USPAP), research costs, demonstration of precision, practicality, plausibility, proficiency, and opinion of value, and continuing education of valuer towards business valuation practice.
How the issues in the article relate to the topics in this unit
The five issues presented in the article relate to the topic of valuation standards, communication and responsibilities. The key areas of the topics include valuation process, report, valuer’s role and responsibility. The issues also support the idea of valuers using valuation standards when preparing valuation reports (Kleeman, 2017). Based on the principle of precision for example, appraisers need to make subjective decisions concerning several items and include it within the conclusion section. The issue of proficiency relates to the topical unit of valuer’s role and responsibilities in terms of their competencies, behaviors, and requirements and credentials. The article reiterates that the quality of any valuation report should depend on adequate information, more appraisers, and qualifications. Similarly, one should use full-time basis to engage in the practice. Apart from certification, the report must have clear communication language to evaluate the competency of a valuer.
How I evaluate the main issues in the case
The main issues explained in the article covers important principles important to any practitioner in business valuation practice. The case shows that it is essential not to keep any secret while preparing business valuation reports. A request to engage in reviewing another valuation report prepared by a valuer, the process must always come down to whether one can reproduce similar conclusion. Besides, while there might be some forms of differences, there might be understanding when there is more information to produce a slightly difference conclusion.
The article shows that even as an individual might review an already written report, one should not replicate the findings. However, the issues presented in the articles bring out the need to ask five major questions. (1) Can one read the current report and understand all the presented information? (2) Does the report have the capability of informing me concerning the background as well as the professional practice of the valuer? (3) Is there some form of differences in nature of data that the valuer has used to prepare the report? Does the valuer/appraiser make reasonable reference to any economic and industry information? (4) Does the report discuss and reconcile potential contradictions about issues presented? (5) Does the report apply elements of common sense, relevant facts, reasonableness, and informed judgment?
Based on your knowledge obtained from the course, what is your comments/opinion relating to the case?
After going through the course topics and reading the case, professional organizations and government agencies produce business valuation reports that relate to business situation as well as economic performance of the market. However, irrespective of the market where the business operates, producing an authentic valuation report that discloses all information is what matters (Ratner, Stein and Weitnauer, 2009). Valuers must not focus on prices they charge on their practice or years of practice to determine the quality of reports. The USPAP should rely on all ten standards. Out of this number, those applicable to business appraisals should cover appraisal, development, and reporting (Hwee, Sin and Hai, 2017).
Dupke, E., Alerding, J., & Hitchner, R.J. (2008). Business evaluation standards: Analysis, application and reporting. John Wiley & Sons
Hitchner, R. J. (2017). Financial valuation and website: Applications and models. John Wiley & Sons
Hood, PL., & Lee, RT. (2011). A reviewer’s handbook to business valuation: Practical guidance to the use of and abuse of a business appraisal. John Wiley & Sons, 31 March 2011
Hwee, E, T., Sin, BL., & Hai, TD. (2017). Business valuation. Cengage Asia; 1st edition (July 31, 2017)
Kleeman Jr., R. E. (2017). Time to Update the Guiding Principles to a Valuation Report. Business Valuation Update, 23(5), 9-12.
Laro, D., & Pratt, PS. (2005). Business Valuation and Taxes: Procedure, Law, and Perspective. John Wiley & Sons
Ratner, I., Stein, T.G., & Weitnauer, CJ. (2009). Business valuation and bankruptcy. John Wiley & Sons
Risius, M. (2007). Business valuation: A primer for the legal profession. American Bar Association.
Trugman, T. (2016). Understanding Business Valuation: A Practical Guide to Valuing Small to Medium Sized Businesses. John Wiley & Sons