Business Valuation Credentials: What Do They All Mean?

What are the credentials for business appraisers?  Are the credentials important? And what do they mean?  Here are the essentials on business valuation credentials.

The three criteria a business owner should use in evaluating or selecting a business appraiser are credentials, training, and experience, in that order.  Professional fees, as long as they are reasonable, should not be the most important criterion in selecting a business appraiser.  In a transaction involving hundreds of thousands or millions of dollars, an incorrect valuation could cost the business owner much more in lost opportunity costs than he/she could save in fees by hiring the wrong appraiser.  Also, if the business valuation becomes part of a litigation matter, or is questioned by the IRS in a tax matter, the credentials of the appraiser will almost certainly be raised as an issue.

Because the business valuation profession is largely self-regulated, many business advisers may offer valuation services.  However, not all valuations or credentials are created equal.

There are currently four main valuation credentials offered in the U.S. by various credentialing bodies:

  • ASA - Accredited Senior Appraiser (by the American Society of Appraisers)
  • CBA - Certified Business Appraiser (by the Institute of Business Appraisers)
  • ABV - Accredited in Business Valuation (by the American Institute of Certified Public Accountants (AICPA))
  • CVA - Certified Valuation Analyst (by the National Association of Certified Valuators and Analysts)

Let's take a closer look at the credentials referenced above.  To start, all of them require a college degree (or equivalent).  As far as valuation-specific training, the ASA credential carries with it by far the most stringent requirements, including 123 hours of classroom study spread across five valuation courses.  Of the five credentials, only the ASA requires the submission of a client valuation report for accreditation.  Applicants for a CVA credential may submit a client business valuation report in lieu of a case study.  Case studies, far less rigorous than client reports to prepare, are also required for a CBA accreditation.  The ABV accreditation process does not require a review of an applicant's work product.

Regarding the experience requirement for accreditation, the ASA credential once again leads the pack, requiring five years (or approximately 10,000 hours) of full-time valuation experience, while the ABV only requires 150 hours of business valuation experience or six completed engagements.  The remaining two credentials, the CBA and CVA, do not require any business valuation work experience, though the CVA does require two years of licensed CPA work experience.  While it is helpful if the appraiser is also a CPA and, therefore, understands the accounting and tax aspects of a business, there is, indeed, no substitute for hands-on valuation experience.  After all, the valuation profession, much like law, is one that demands a high degree of judgment, and judgment is developed from education tempered by practical experience doing valuations.

The business appraiser should perform business valuations on a regular basis and not just dabble in it.  Look for someone whose sole business is business valuation (not a CPA that prepares valuations when he/she does not have enough tax or accounting work to keep busy or a business broker that prepares valuations in contemplation of selling a company).  An added advantage of hiring a business appraiser who is solely dedicated to valuation work is the avoidance of any potential conflicts of interest involved with having, for example, a CPA doing both the valuation work and the attestation/accounting work.

It is also important to consider business valuation standards.  The credentialing bodies referenced in the bullets above follow various business valuation standards, which are codes of practice and include a code of ethics.  The body of standards known as the Uniform Standards of Professional Appraisal Practice (USPAP), promulgated by The Appraisal Foundation in 1987, is generally recognized as the authoritative code of standards for appraisers.  In addition, USPAP has been recognized by Congress, as well as federal law, as the generally accepted appraisal standards and this code is required to be followed by appraisers in federally related transactions.

The standards issued by the credentialing bodies offering the CVA and CBA designations acknowledge USPAP, but do not explicitly incorporate USPAP.  The standards promulgated by the AICPA (ABV credential), referred to as SSVS (Statements on Standards for Valuation Services), neither define their relationship to USPAP nor mention USPAP.

Clearly, all business valuation credentials are not created equal.  Therefore, it is important to do due diligence before choosing a business appraiser.