ValuAdder Business Valuation Blog

Once in a while you run across business valuation projects that must defer to special requirements.  Sometimes they appear to be in conflict with major business valuation standards. As an example,  your local court may call for just a market based business valuation even though the USPAP or International Valuation Standards (IVS) expect you to use all three approaches: asset, income, and market.

The Departure Clause

What to do in such cases? IVS sheds some light on this confusing subject in its Departures clause. The standard recognizes that business appraisers, or valuers, as they are called in IVS. And these professionals must adhere to the local laws, regulatory or other authoritative requirements in order to create a viable business valuation. For the purposes of your particular appraisal project, you can still comply with the IVS even though the local rules require that you depart from the letter of the standard.

Conflicting case law situations

To get around the predicament, you should identify the particular departure you take in your valuation. For instance, you may need to comply with the local case law. Let’s imagine that, in your judgment, the departure materially affects your valuation analysis, the methods you use or your key assumptions and conclusions of business value.  Then you should clearly state both the specific local requirements you needed to meet and the extent to which they differ from the appraisal standard procedures.

No shortcuts allowed

The IVS standard does not allow any other reasons for disregarding the standard requirements. For example, your client’s request to cut down on the amount of market and industry research or business risk assessment is no excuse as far as IVS goes. Do you feel the pressure from the client to reduce the scope of work in order to crank out a substandard business appraisal?  Then you cannot claim that the resulting work product is IVS or USPAP standard-compliant.