Business appraisal conduct under the USPAP Ethics Rule
Most professional business appraisers these days do their valuation in compliance with the Uniform Standards of Professional Appraisal Practice, or USPAP for short. And the USPAP standards have evolved to keep pace with the changing demands of the appraisal profession.
Ethics rule for reliable, defensible and transparent appraisals
Clients need reliable, defensible, and transparent business valuations. As a result, the USPAP standard authors have developed a set of guidelines under the so called Ethics Rule. In addition to the management of appraisal engagements and ensuring client confidentiality, the Ethics Rule specifies a set of professional conduct rules.
Considering taking on a business valuation engagement? Take a look at the guidelines of what it takes to complete a professional business appraisal that makes the grade under the USPAP standard:
Ethics rule requirements list
You must perform business valuations in an objective, impartial manner and without seeking to satisfy your personal interest. The standard specifically states these requirements:
- You must show no bias in your valuation analysis.
- You must not act as an advocate of any party, including your client.
- Refrain from agreeing to a certain valuation result before completing your analysis.
- Steer clear of any attempts to mislead or defraud the recipients of your business appraisal.
- No fake business valuation reporting should creep into your work.
- You must not be influenced in your valuation conclusion by any considerations as to the personal attributes of client or other parties. For example their race, ethnic background, religious preferences or gender.
- Business valuation must demonstrate the appropriate level of due diligence and prevent negligent mistakes.
- You should have no ownership interest in the business being valued to avoid conflicts.
Essentially, a business appraiser should conduct valuation at arms length and remain impartial throughout the project. Any bias or motivation to arrive at a predetermined result raises obvious suspicion and you should avoid it. This holds true even if you have had a long term relationship with the client and know their needs for the business appraisal.
Resist the pressure to buckle to your client’s demands to come up with a figure. Offer instead an objective business valuation and communicate the results and reasons behind them clearly.
You can then help your client understand what they can do to enhance their business value. And then develop a plan to achieve these goals over time.