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Litigation matters often require that the value of specific assets or business be determined. The standards by which such valuations are arrived at can be complicated and sometimes confusing. This article introduces the idea that a calculation of value report-which can rely on limited procedures in certain situations and unlimited procedures in others-meets the requirements of reliability and fitness under the Federal Rules of Evidence (Rule 702) and the "reliable and relevant" test under the Frye standard [Frye v. U.S., 293 F. 1013 (D.C. Cir. 1923)]. It is important to emphasize that the authors believe that this holds true so long as the forensic accountant is free to apply his own approaches and methods to determine a value or range of value.
There are situations in litigation that may not require all of the procedures used in a valuation engagement; thus, a calculation engagement can provide sufficient evidence to be used in an expert opinion submitted to a court or arbiter. Recent court decisions have relied upon a calculation of value in expert testimony. The main issue centers on whether the forensic accountant is free to determine the valuation approach and methods and has access to suitable information to determine value.
Description of Valuation Report Requirements
The AICPA's Statements on Standards for Valuation Services (VS) section 100, paragraph .21(a) states that a valuation engagement is performed when-
(1) the engagement calls for the valuation analyst to estimate the value of a subject interest, and (2) the valuation analyst estimates the value and is free to apply the valuation approaches and methods he or she deems appropriate in the circumstances. The valuation analyst expresses the results of the valuation as a conclusion of value; the conclusion may be either a single amount or range.
VS 100, paragraph .21(b) states that a calculation engagement is established by an understanding with the client based on the fact that-
(1) the valuation analyst and the client agree on the valuation approaches and methods the valuation analyst will use and the extent of procedures the valuation analyst will perform in the process of calculating the value of a subject interest (these procedures will be more limited than those of a valuation engagement) and (2) the valuation analyst calculates the value...